Correlation Between Ritchie Bros and Brookfield Renewable

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

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

Diversification Opportunities for Ritchie Bros and Brookfield Renewable

0.86

Correlation Coefficient

Ritchie Bros  Brookfield Renewable

Very poor diversification

The 3 months correlation between Ritchie and Brookfield is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ritchie Bros Auctioneers and Brookfield Renewable Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable and Ritchie Bros 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 Ritchie Bros Auctioneers are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of Ritchie Bros i.e., Ritchie Bros and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Ritchie Bros and Brookfield Renewable

Assuming the 90 days trading horizon Ritchie Bros Auctioneers is expected to generate 2.73 times more return on investment than Brookfield Renewable. However, Ritchie Bros is 2.73 times more volatile than Brookfield Renewable Energy. It trades about 0.17 of its potential returns per unit of risk. Brookfield Renewable Energy is currently generating about 0.13 per unit of risk. If you would invest  11,542  in Ritchie Bros Auctioneers on September 14, 2024 and sell it today you would earn a total of  1,965  from holding Ritchie Bros Auctioneers or generate 17.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Ritchie Bros Auctioneers  vs.  Brookfield Renewable Energy

Ritchie Bros Auctioneers

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ritchie Bros Auctioneers are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Ritchie Bros displayed solid returns over the last few months and may actually be approaching a breakup point.

Brookfield Renewable

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Renewable Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield Renewable is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ritchie Bros and Brookfield Renewable

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

The idea behind Ritchie Bros Auctioneers and Brookfield Renewable Energy 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.