Correlation Between Royal Bank and Brookfield Business

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

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

Diversification Opportunities for Royal Bank and Brookfield Business

0.78

Correlation Coefficient

Royal Bank  Brookfield Business

Poor diversification

The 3 months correlation between Royal and Brookfield is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Brookfield Business Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business and Royal 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 Royal Bank of 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 Royal Bank i.e., Royal Bank and Brookfield Business go up and down completely randomly.

Pair Corralation between Royal Bank and Brookfield Business

Assuming the 90 days horizon Royal Bank is expected to generate 4.06 times less return on investment than Brookfield Business. But when comparing it to its historical volatility, Royal Bank of is 3.0 times less risky than Brookfield Business. It trades about 0.17 of its potential returns per unit of risk. Brookfield Business Partners is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,648  in Brookfield Business Partners on September 5, 2024 and sell it today you would earn a total of  980.00  from holding Brookfield Business Partners or generate 37.01% return on investment over 90 days.

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

Royal Bank of  vs.  Brookfield Business Partners

Royal Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Royal Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brookfield Business

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Partners are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Brookfield Business sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Bank and Brookfield Business

The main advantage of trading using opposite Royal Bank and Brookfield Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank 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 Royal Bank of 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.