Correlation Between Northland Power and Brookfield

Can any of the company-specific risk be diversified away by investing in both Northland Power 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 Northland Power and Brookfield 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, you can compare the effects of market volatilities on Northland Power 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 Northland Power with a short position of Brookfield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northland Power and Brookfield.

Diversification Opportunities for Northland Power and Brookfield

-0.8

Correlation Coefficient

Northland Power  Brookfield

Pay attention - limited upside

The 3 months correlation between Northland and Brookfield is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield 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. 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 Northland Power i.e., Northland Power and Brookfield go up and down completely randomly.

Pair Corralation between Northland Power and Brookfield

Assuming the 90 days trading horizon Northland Power is expected to under-perform the Brookfield. In addition to that, Northland Power is 1.19 times more volatile than Brookfield. It trades about -0.2 of its total potential returns per unit of risk. Brookfield is currently generating about 0.17 per unit of volatility. If you would invest  7,183  in Brookfield on September 28, 2024 and sell it today you would earn a total of  1,096  from holding Brookfield or generate 15.26% return on investment over 90 days.

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

Northland Power  vs.  Brookfield

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

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.

Pair Trading with Northland Power and Brookfield

The main advantage of trading using opposite Northland Power and Brookfield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northland Power 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 Northland Power 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.