Correlation Between Chatham Rock and Brookfield Infrastructure

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

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

Diversification Opportunities for Chatham Rock and Brookfield Infrastructure

0.33

Correlation Coefficient

Chatham Rock  Brookfield Infrastructure

Weak diversification

The 3 months correlation between Chatham and Brookfield is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Chatham Rock Phosphate and Brookfield Infrastructure Part in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Infrastructure and Chatham Rock 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 Chatham Rock Phosphate are associated (or correlated) with Brookfield Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Infrastructure has no effect on the direction of Chatham Rock i.e., Chatham Rock and Brookfield Infrastructure go up and down completely randomly.

Pair Corralation between Chatham Rock and Brookfield Infrastructure

Assuming the 90 days horizon Chatham Rock Phosphate is expected to generate 17.13 times more return on investment than Brookfield Infrastructure. However, Chatham Rock is 17.13 times more volatile than Brookfield Infrastructure Partners. It trades about 0.01 of its potential returns per unit of risk. Brookfield Infrastructure Partners is currently generating about 0.07 per unit of risk. If you would invest  9.00  in Chatham Rock Phosphate on September 23, 2024 and sell it today you would lose (2.50) from holding Chatham Rock Phosphate or give up 27.78% of portfolio value over 90 days.

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

Chatham Rock Phosphate  vs.  Brookfield Infrastructure Part

Chatham Rock Phosphate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chatham Rock Phosphate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chatham Rock is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Brookfield Infrastructure

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Infrastructure Partners are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield Infrastructure is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chatham Rock and Brookfield Infrastructure

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

The idea behind Chatham Rock Phosphate and Brookfield Infrastructure 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.