Correlation Between Northern Trust and Brookfield Asset

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

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

Diversification Opportunities for Northern Trust and Brookfield Asset

0.93

Correlation Coefficient

Northern Trust  Brookfield Asset

Almost no diversification

The 3 months correlation between Northern and Brookfield is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and Brookfield Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Asset Man and Northern Trust 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 Northern Trust are associated (or correlated) with Brookfield Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Asset Man has no effect on the direction of Northern Trust i.e., Northern Trust and Brookfield Asset go up and down completely randomly.

Pair Corralation between Northern Trust and Brookfield Asset

Given the investment horizon of 90 days Northern Trust is expected to under-perform the Brookfield Asset. But the stock apears to be less risky and, when comparing its historical volatility, Northern Trust is 1.6 times less risky than Brookfield Asset. The stock trades about -0.2 of its potential returns per unit of risk. The Brookfield Asset Management is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  5,725  in Brookfield Asset Management on October 11, 2024 and sell it today you would lose (154.00) from holding Brookfield Asset Management or give up 2.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Northern Trust  vs.  Brookfield Asset Management

Northern Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Northern Trust may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Brookfield Asset Man

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Asset Management are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Brookfield Asset displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Trust and Brookfield Asset

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

The idea behind Northern Trust and Brookfield Asset Management 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.