Correlation Between Brookfield and Brookfield Renewable

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

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

Diversification Opportunities for Brookfield and Brookfield Renewable

-0.51

Correlation Coefficient

Brookfield  Brookfield Renewable

Excellent diversification

The 3 months correlation between Brookfield and Brookfield is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and Brookfield Renewable Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable 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 Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of Brookfield i.e., Brookfield and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Brookfield and Brookfield Renewable

Assuming the 90 days horizon Brookfield is expected to generate 1.19 times more return on investment than Brookfield Renewable. However, Brookfield is 1.19 times more volatile than Brookfield Renewable Partners. It trades about -0.12 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about -0.37 per unit of risk. If you would invest  8,609  in Brookfield on September 28, 2024 and sell it today you would lose (330.00) from holding Brookfield or give up 3.83% of portfolio value over 90 days.

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

Brookfield  vs.  Brookfield Renewable Partners

Brookfield

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Brookfield and Brookfield Renewable

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

The idea behind Brookfield and Brookfield Renewable Partners 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.