Correlation Between Brompton Split and Energy Income

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

By analyzing existing cross correlation between Brompton Split Banc and Energy Income, you can compare the effects of market volatilities on Brompton Split and Energy Income 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 Brompton Split with a short position of Energy Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton Split and Energy Income.

Diversification Opportunities for Brompton Split and Energy Income

0.76

Correlation Coefficient

Brompton Split  Energy Income

Poor diversification

The 3 months correlation between Brompton and Energy is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Brompton Split Banc and Energy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Income and Brompton Split 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 Brompton Split Banc are associated (or correlated) with Energy Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Income has no effect on the direction of Brompton Split i.e., Brompton Split and Energy Income go up and down completely randomly.

Pair Corralation between Brompton Split and Energy Income

Assuming the 90 days trading horizon Brompton Split Banc is expected to generate 0.46 times more return on investment than Energy Income. However, Brompton Split Banc is 2.16 times less risky than Energy Income. It trades about 0.26 of its potential returns per unit of risk. Energy Income is currently generating about 0.06 per unit of risk. If you would invest  911.00  in Brompton Split Banc on September 4, 2024 and sell it today you would earn a total of  147.00  from holding Brompton Split Banc or generate 16.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Brompton Split Banc  vs.  Energy Income

Brompton Split Banc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton Split Banc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Brompton Split displayed solid returns over the last few months and may actually be approaching a breakup point.

Energy Income

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Income are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Energy Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brompton Split and Energy Income

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

The idea behind Brompton Split Banc and Energy Income 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.