Correlation Between Northland Power and Brookfield Infrastructure

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

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

Diversification Opportunities for Northland Power and Brookfield Infrastructure

0.05

Correlation Coefficient

Northland Power  Brookfield Infrastructure

Significant diversification

The 3 months correlation between Northland and Brookfield is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and Brookfield Infrastructure Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Infrastructure and Northland Power 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 Northland Power are associated (or correlated) with Brookfield Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Infrastructure has no effect on the direction of Northland Power i.e., Northland Power and Brookfield Infrastructure go up and down completely randomly.

Pair Corralation between Northland Power and Brookfield Infrastructure

Assuming the 90 days trading horizon Northland Power is expected to under-perform the Brookfield Infrastructure. In addition to that, Northland Power is 1.09 times more volatile than Brookfield Infrastructure Corp. It trades about -0.2 of its total potential returns per unit of risk. Brookfield Infrastructure Corp is currently generating about -0.06 per unit of volatility. If you would invest  5,873  in Brookfield Infrastructure Corp on September 28, 2024 and sell it today you would lose (352.00) from holding Brookfield Infrastructure Corp or give up 5.99% of portfolio value over 90 days.

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

Northland Power  vs.  Brookfield Infrastructure Corp

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.

Brookfield Infrastructure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookfield Infrastructure Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brookfield Infrastructure is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Northland Power and Brookfield Infrastructure

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

The idea behind Northland Power and Brookfield Infrastructure 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.