Correlation Between Laurentian Bank and Brookfield

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

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

Diversification Opportunities for Laurentian Bank and Brookfield

0.9

Correlation Coefficient

Laurentian Bank  Brookfield

Almost no diversification

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

Pair Corralation between Laurentian Bank and Brookfield

Assuming the 90 days horizon Laurentian Bank is expected to generate 2.15 times more return on investment than Brookfield. However, Laurentian Bank is 2.15 times more volatile than Brookfield. It trades about 0.08 of its potential returns per unit of risk. Brookfield is currently generating about 0.14 per unit of risk. If you would invest  2,541  in Laurentian Bank on September 30, 2024 and sell it today you would earn a total of  331.00  from holding Laurentian Bank or generate 13.03% return on investment over 90 days.

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

Laurentian Bank  vs.  Brookfield

Laurentian Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Laurentian Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Laurentian Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brookfield

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Brookfield may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Laurentian Bank and Brookfield

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

The idea behind Laurentian Bank and Brookfield 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.