Correlation Between Brookfield and Northland Power

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

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

Diversification Opportunities for Brookfield and Northland Power

-0.8

Correlation Coefficient

Brookfield  Northland Power

Pay attention - limited upside

The 3 months correlation between Brookfield and Northland is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Brookfield i.e., Brookfield and Northland Power go up and down completely randomly.

Pair Corralation between Brookfield and Northland Power

Assuming the 90 days horizon Brookfield is expected to generate 1.04 times more return on investment than Northland Power. However, Brookfield is 1.04 times more volatile than Northland Power. It trades about -0.12 of its potential returns per unit of risk. Northland Power is currently generating about -0.28 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	Significant
Accuracy	100.0%
Values	Daily Returns

Brookfield  vs.  Northland Power

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.

Northland Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northland Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Brookfield and Northland Power

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

The idea behind Brookfield and Northland Power 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.