Correlation Between RWE AG and Brookfield Infrastructure

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

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

Diversification Opportunities for RWE AG and Brookfield Infrastructure

0.83

Correlation Coefficient

RWE AG  Brookfield Infrastructure

Very poor diversification

The 3 months correlation between RWE and Brookfield is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and Brookfield Infrastructure Part in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Infrastructure and RWE AG 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 RWE AG PK 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 RWE AG i.e., RWE AG and Brookfield Infrastructure go up and down completely randomly.

Pair Corralation between RWE AG and Brookfield Infrastructure

Assuming the 90 days horizon RWE AG PK is expected to under-perform the Brookfield Infrastructure. But the pink sheet apears to be less risky and, when comparing its historical volatility, RWE AG PK is 1.31 times less risky than Brookfield Infrastructure. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Brookfield Infrastructure Partners is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,037  in Brookfield Infrastructure Partners on November 20, 2024 and sell it today you would earn a total of  247.00  from holding Brookfield Infrastructure Partners or generate 8.13% return on investment over 90 days.

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

RWE AG PK  vs.  Brookfield Infrastructure Part

RWE AG PK

Risk-Adjusted Performance

Very Weak

Over the last 90 days RWE AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Brookfield Infrastructure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookfield Infrastructure Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Brookfield Infrastructure is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with RWE AG and Brookfield Infrastructure

The main advantage of trading using opposite RWE AG and Brookfield Infrastructure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RWE AG 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 RWE AG PK 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.