Correlation Between International Business and Brookfield

Can any of the company-specific risk be diversified away by investing in both International Business and Brookfield at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining International Business and Brookfield into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between International Business Machines and Brookfield, you can compare the effects of market volatilities on International Business and Brookfield and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in International Business with a short position of Brookfield. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and Brookfield.

Diversification Opportunities for International Business and Brookfield

0.32

Correlation Coefficient

International Business  Brookfield

Weak diversification

The 3 months correlation between International and Brookfield is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield and International Business is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on International Business Machines are associated (or correlated) with Brookfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield has no effect on the direction of International Business i.e., International Business and Brookfield go up and down completely randomly.

Pair Corralation between International Business and Brookfield

Assuming the 90 days trading horizon International Business Machines is expected to generate 1.26 times more return on investment than Brookfield. However, International Business is 1.26 times more volatile than Brookfield. It trades about 0.33 of its potential returns per unit of risk. Brookfield is currently generating about 0.3 per unit of risk. If you would invest  3,200  in International Business Machines on September 18, 2024 and sell it today you would earn a total of  318.00  from holding International Business Machines or generate 9.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

International Business Machine  vs.  Brookfield

International Business

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brookfield

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Brookfield

The main advantage of trading using opposite International Business and Brookfield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business position performs unexpectedly, Brookfield can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Brookfield will offset losses from the drop in Brookfield's long position.

The idea behind International Business Machines and Brookfield pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.