Correlation Between RBC European and Brookfield

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

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

Diversification Opportunities for RBC European and Brookfield

-0.41

Correlation Coefficient

RBC European  Brookfield

Very good diversification

The 3 months correlation between RBC and Brookfield is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding RBC European Mid Cap and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield and RBC European 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 RBC European Mid Cap are associated (or correlated) with Brookfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield has no effect on the direction of RBC European i.e., RBC European and Brookfield go up and down completely randomly.

Pair Corralation between RBC European and Brookfield

Assuming the 90 days trading horizon RBC European Mid Cap is expected to under-perform the Brookfield. In addition to that, RBC European is 1.07 times more volatile than Brookfield. It trades about -0.02 of its total potential returns per unit of risk. Brookfield is currently generating about 0.1 per unit of volatility. If you would invest  2,305  in Brookfield on September 12, 2024 and sell it today you would earn a total of  92.00  from holding Brookfield or generate 3.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

RBC European Mid Cap  vs.  Brookfield

RBC European Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RBC European Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, RBC European is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Brookfield

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RBC European and Brookfield

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

The idea behind RBC European Mid Cap and Brookfield 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.