Correlation Between National Bank and Brookfield Investments

Can any of the company-specific risk be diversified away by investing in both National Bank and Brookfield Investments 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 National Bank and Brookfield Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Bank of and Brookfield Investments, you can compare the effects of market volatilities on National Bank and Brookfield Investments 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 National Bank with a short position of Brookfield Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Brookfield Investments.

Diversification Opportunities for National Bank and Brookfield Investments

-0.16

Correlation Coefficient

National Bank  Brookfield Investments

Good diversification

The 3 months correlation between National and Brookfield is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Brookfield Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Investments and National Bank 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 National Bank of are associated (or correlated) with Brookfield Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Investments has no effect on the direction of National Bank i.e., National Bank and Brookfield Investments go up and down completely randomly.

Pair Corralation between National Bank and Brookfield Investments

Assuming the 90 days trading horizon National Bank is expected to generate 4.06 times less return on investment than Brookfield Investments. But when comparing it to its historical volatility, National Bank of is 3.93 times less risky than Brookfield Investments. It trades about 0.1 of its potential returns per unit of risk. Brookfield Investments is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,495  in Brookfield Investments on November 29, 2024 and sell it today you would earn a total of  32.00  from holding Brookfield Investments or generate 1.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	42.86%
Values	Daily Returns

National Bank of  vs.  Brookfield Investments

National Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, National Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Brookfield Investments

Risk-Adjusted Performance

Weak

Over the last 90 days Brookfield Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Brookfield Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with National Bank and Brookfield Investments

The main advantage of trading using opposite National Bank and Brookfield Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank position performs unexpectedly, Brookfield Investments 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 Investments will offset losses from the drop in Brookfield Investments' long position.

The idea behind National Bank of and Brookfield Investments 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.