Correlation Between Brookfield Renewable and Canadian Utilities

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

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

Diversification Opportunities for Brookfield Renewable and Canadian Utilities

0.31

Correlation Coefficient

Brookfield Renewable  Canadian Utilities

Weak diversification

The 3 months correlation between Brookfield and Canadian is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Renewable Partners and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and Brookfield Renewable 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 Brookfield Renewable Partners are associated (or correlated) with Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Brookfield Renewable i.e., Brookfield Renewable and Canadian Utilities go up and down completely randomly.

Pair Corralation between Brookfield Renewable and Canadian Utilities

Assuming the 90 days trading horizon Brookfield Renewable Partners is expected to under-perform the Canadian Utilities. In addition to that, Brookfield Renewable is 2.38 times more volatile than Canadian Utilities Limited. It trades about -0.08 of its total potential returns per unit of risk. Canadian Utilities Limited is currently generating about -0.04 per unit of volatility. If you would invest  3,528  in Canadian Utilities Limited on September 25, 2024 and sell it today you would lose (77.00) from holding Canadian Utilities Limited or give up 2.18% of portfolio value over 90 days.

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

Brookfield Renewable Partners  vs.  Canadian Utilities Limited

Brookfield Renewable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookfield Renewable Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite 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.

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Brookfield Renewable and Canadian Utilities

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

The idea behind Brookfield Renewable Partners and Canadian Utilities Limited 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.