Correlation Between Algonquin Power and Brookfield Asset

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

By analyzing existing cross correlation between Algonquin Power Utilities and Brookfield Asset Management, you can compare the effects of market volatilities on Algonquin Power and Brookfield Asset 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 Algonquin Power with a short position of Brookfield Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algonquin Power and Brookfield Asset.

Diversification Opportunities for Algonquin Power and Brookfield Asset

0.03

Correlation Coefficient

Algonquin Power  Brookfield Asset

Significant diversification

The 3 months correlation between Algonquin and Brookfield is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Brookfield Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Asset Man and Algonquin Power 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 Algonquin Power Utilities are associated (or correlated) with Brookfield Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Asset Man has no effect on the direction of Algonquin Power i.e., Algonquin Power and Brookfield Asset go up and down completely randomly.

Pair Corralation between Algonquin Power and Brookfield Asset

Assuming the 90 days trading horizon Algonquin Power is expected to generate 6.52 times less return on investment than Brookfield Asset. But when comparing it to its historical volatility, Algonquin Power Utilities is 1.0 times less risky than Brookfield Asset. It trades about 0.03 of its potential returns per unit of risk. Brookfield Asset Management is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,130  in Brookfield Asset Management on September 3, 2024 and sell it today you would earn a total of  90.00  from holding Brookfield Asset Management or generate 7.96% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Brookfield Asset Management

Algonquin Power Utilities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Algonquin Power is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Brookfield Asset Man

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Asset Management are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Brookfield Asset may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Algonquin Power and Brookfield Asset

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

The idea behind Algonquin Power Utilities and Brookfield Asset Management 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.