Correlation Between Brookfield and First National

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

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

Diversification Opportunities for Brookfield and First National

0.85

Correlation Coefficient

Brookfield  First National

Very poor diversification

The 3 months correlation between Brookfield and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and First National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Financial and Brookfield 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 are associated (or correlated) with First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Financial has no effect on the direction of Brookfield i.e., Brookfield and First National go up and down completely randomly.

Pair Corralation between Brookfield and First National

Assuming the 90 days trading horizon Brookfield is expected to generate 0.49 times more return on investment than First National. However, Brookfield is 2.04 times less risky than First National. It trades about 0.14 of its potential returns per unit of risk. First National Financial is currently generating about 0.06 per unit of risk. If you would invest  1,101  in Brookfield on September 30, 2024 and sell it today you would earn a total of  117.00  from holding Brookfield or generate 10.63% return on investment over 90 days.

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

Brookfield  vs.  First National Financial

Brookfield

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Brookfield may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First National Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First National Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, First National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brookfield and First National

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

The idea behind Brookfield and First National Financial 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.