Correlation Between Nasdaq and Brookfield Business

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

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

Diversification Opportunities for Nasdaq and Brookfield Business

0.3

Correlation Coefficient

Nasdaq  Brookfield Business

Weak diversification

The 3 months correlation between Nasdaq and Brookfield is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Brookfield Business Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business and Nasdaq 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 Nasdaq Inc are associated (or correlated) with Brookfield Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Business has no effect on the direction of Nasdaq i.e., Nasdaq and Brookfield Business go up and down completely randomly.

Pair Corralation between Nasdaq and Brookfield Business

Given the investment horizon of 90 days Nasdaq is expected to generate 1.05 times less return on investment than Brookfield Business. But when comparing it to its historical volatility, Nasdaq Inc is 1.72 times less risky than Brookfield Business. It trades about 0.08 of its potential returns per unit of risk. Brookfield Business Partners is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,268  in Brookfield Business Partners on December 4, 2024 and sell it today you would earn a total of  1,225  from holding Brookfield Business Partners or generate 54.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Nasdaq Inc  vs.  Brookfield Business Partners

Nasdaq Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Brookfield Business

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nasdaq and Brookfield Business

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

The idea behind Nasdaq Inc and Brookfield Business Partners 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.