Correlation Between Brinker International and NEXTDC

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

By analyzing existing cross correlation between Brinker International and NEXTDC LTD, you can compare the effects of market volatilities on Brinker International and NEXTDC 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 Brinker International with a short position of NEXTDC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brinker International and NEXTDC.

Diversification Opportunities for Brinker International and NEXTDC

-0.66

Correlation Coefficient

Brinker International  NEXTDC

Excellent diversification

The 3 months correlation between Brinker and NEXTDC is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Brinker International and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD and Brinker International 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 Brinker International are associated (or correlated) with NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of Brinker International i.e., Brinker International and NEXTDC go up and down completely randomly.

Pair Corralation between Brinker International and NEXTDC

Assuming the 90 days horizon Brinker International is expected to generate 1.3 times more return on investment than NEXTDC. However, Brinker International is 1.3 times more volatile than NEXTDC LTD. It trades about 0.32 of its potential returns per unit of risk. NEXTDC LTD is currently generating about -0.08 per unit of risk. If you would invest  7,000  in Brinker International on September 24, 2024 and sell it today you would earn a total of  5,700  from holding Brinker International or generate 81.43% return on investment over 90 days.

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

Brinker International  vs.  NEXTDC LTD

Brinker International

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Brinker International reported solid returns over the last few months and may actually be approaching a breakup point.

NEXTDC LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXTDC LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Brinker International and NEXTDC

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

The idea behind Brinker International and NEXTDC LTD 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 CEOs Directory module to screen CEOs from public companies around the world.