Correlation Between Brookfield Infrastructure and Otter Tail

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

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

Diversification Opportunities for Brookfield Infrastructure and Otter Tail

-0.46

Correlation Coefficient

Brookfield Infrastructure  Otter Tail

Very good diversification

The 3 months correlation between Brookfield and Otter is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Infrastructure Part and Otter Tail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otter Tail and Brookfield Infrastructure 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 Infrastructure Partners are associated (or correlated) with Otter Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otter Tail has no effect on the direction of Brookfield Infrastructure i.e., Brookfield Infrastructure and Otter Tail go up and down completely randomly.

Pair Corralation between Brookfield Infrastructure and Otter Tail

Assuming the 90 days trading horizon Brookfield Infrastructure is expected to generate 1.75 times less return on investment than Otter Tail. But when comparing it to its historical volatility, Brookfield Infrastructure Partners is 1.64 times less risky than Otter Tail. It trades about 0.09 of its potential returns per unit of risk. Otter Tail is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,763  in Otter Tail on September 2, 2024 and sell it today you would earn a total of  301.00  from holding Otter Tail or generate 3.88% return on investment over 90 days.

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

Brookfield Infrastructure Part  vs.  Otter Tail

Brookfield Infrastructure

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Infrastructure Partners are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Brookfield Infrastructure may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Otter Tail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Otter Tail has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Otter Tail is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Brookfield Infrastructure and Otter Tail

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

The idea behind Brookfield Infrastructure Partners and Otter Tail 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.