Correlation Between Diamond Hill and Brookfield Business

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

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

Diversification Opportunities for Diamond Hill and Brookfield Business

0.76

Correlation Coefficient

Diamond Hill  Brookfield Business

Poor diversification

The 3 months correlation between Diamond and Brookfield is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Brookfield Business Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business Corp and Diamond Hill 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 Diamond Hill Investment are associated (or correlated) with Brookfield Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Business Corp has no effect on the direction of Diamond Hill i.e., Diamond Hill and Brookfield Business go up and down completely randomly.

Pair Corralation between Diamond Hill and Brookfield Business

Given the investment horizon of 90 days Diamond Hill Investment is expected to under-perform the Brookfield Business. But the stock apears to be less risky and, when comparing its historical volatility, Diamond Hill Investment is 1.93 times less risky than Brookfield Business. The stock trades about -0.33 of its potential returns per unit of risk. The Brookfield Business Corp is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,653  in Brookfield Business Corp on September 15, 2024 and sell it today you would lose (83.00) from holding Brookfield Business Corp or give up 3.13% of portfolio value over 90 days.

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

Diamond Hill Investment  vs.  Brookfield Business Corp

Diamond Hill Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Brookfield Business Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Brookfield Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamond Hill and Brookfield Business

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

The idea behind Diamond Hill Investment and Brookfield Business Corp 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.