Correlation Between Brookfield and Canadian Life

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

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

Diversification Opportunities for Brookfield and Canadian Life

0.9

Correlation Coefficient

Brookfield  Canadian Life

Almost no diversification

The 3 months correlation between Brookfield and Canadian is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and Canadian Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Life Companies 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 Canadian Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Life Companies has no effect on the direction of Brookfield i.e., Brookfield and Canadian Life go up and down completely randomly.

Pair Corralation between Brookfield and Canadian Life

Assuming the 90 days horizon Brookfield is expected to generate 4.76 times more return on investment than Canadian Life. However, Brookfield is 4.76 times more volatile than Canadian Life Companies. It trades about 0.14 of its potential returns per unit of risk. Canadian Life Companies is currently generating about 0.16 per unit of risk. If you would invest  7,079  in Brookfield on September 20, 2024 and sell it today you would earn a total of  909.00  from holding Brookfield or generate 12.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Brookfield  vs.  Canadian Life Companies

Brookfield

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Canadian Life Companies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Life Companies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Canadian Life is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Brookfield and Canadian Life

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

The idea behind Brookfield and Canadian Life Companies 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.