Correlation Between Brookfield Renewable and Northland Power

Can any of the company-specific risk be diversified away by investing in both Brookfield Renewable and Northland Power 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 Northland Power 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 Northland Power, you can compare the effects of market volatilities on Brookfield Renewable and Northland Power 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 Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookfield Renewable and Northland Power.

Diversification Opportunities for Brookfield Renewable and Northland Power

0.57

Correlation Coefficient

Brookfield Renewable  Northland Power

Very weak diversification

The 3 months correlation between Brookfield and Northland is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Renewable Partners and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Brookfield Renewable i.e., Brookfield Renewable and Northland Power go up and down completely randomly.

Pair Corralation between Brookfield Renewable and Northland Power

Assuming the 90 days trading horizon Brookfield Renewable Partners is expected to generate 1.21 times more return on investment than Northland Power. However, Brookfield Renewable is 1.21 times more volatile than Northland Power. It trades about 0.11 of its potential returns per unit of risk. Northland Power is currently generating about 0.02 per unit of risk. If you would invest  3,248  in Brookfield Renewable Partners on August 31, 2024 and sell it today you would earn a total of  465.00  from holding Brookfield Renewable Partners or generate 14.32% return on investment over 90 days.

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

Brookfield Renewable Partners  vs.  Northland Power

Brookfield Renewable

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Renewable Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Brookfield Renewable sustained solid returns over the last few months and may actually be approaching a breakup point.

Northland Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Northland Power 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 Northland Power

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

The idea behind Brookfield Renewable Partners and Northland Power 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.