Correlation Between Brookfield Office and AKITA Drilling

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

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

Diversification Opportunities for Brookfield Office and AKITA Drilling

0.75

Correlation Coefficient

Brookfield Office  AKITA Drilling

Poor diversification

The 3 months correlation between Brookfield and AKITA is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Office Properties and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Brookfield Office 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 Office Properties are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of Brookfield Office i.e., Brookfield Office and AKITA Drilling go up and down completely randomly.

Pair Corralation between Brookfield Office and AKITA Drilling

Assuming the 90 days trading horizon Brookfield Office is expected to generate 1.28 times less return on investment than AKITA Drilling. But when comparing it to its historical volatility, Brookfield Office Properties is 2.63 times less risky than AKITA Drilling. It trades about 0.27 of its potential returns per unit of risk. AKITA Drilling is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  136.00  in AKITA Drilling on September 15, 2024 and sell it today you would earn a total of  27.00  from holding AKITA Drilling or generate 19.85% return on investment over 90 days.

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

Brookfield Office Properties  vs.  AKITA Drilling

Brookfield Office

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Office Properties are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Brookfield Office sustained solid returns over the last few months and may actually be approaching a breakup point.

AKITA Drilling

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, AKITA Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brookfield Office and AKITA Drilling

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

The idea behind Brookfield Office Properties and AKITA Drilling 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.