Correlation Between Northland Power and Brookfield Renewable

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

Diversification Opportunities for Northland Power and Brookfield Renewable

0.27

Correlation Coefficient

Northland Power  Brookfield Renewable

Modest diversification

The 3 months correlation between Northland and Brookfield is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and Brookfield Renewable Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable Corp 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 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 Corp has no effect on the direction of Northland Power i.e., Northland Power and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Northland Power and Brookfield Renewable

Assuming the 90 days trading horizon Northland Power is expected to generate 8.17 times less return on investment than Brookfield Renewable. But when comparing it to its historical volatility, Northland Power is 1.4 times less risky than Brookfield Renewable. It trades about 0.02 of its potential returns per unit of risk. Brookfield Renewable Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,745  in Brookfield Renewable Corp on September 2, 2024 and sell it today you would earn a total of  717.00  from holding Brookfield Renewable Corp or generate 19.15% return on investment over 90 days.

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

Northland Power  vs.  Brookfield Renewable Corp

Northland Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Northland Power is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Brookfield Renewable Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Renewable Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield Renewable displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northland Power and Brookfield Renewable

The main advantage of trading using opposite Northland Power and Brookfield Renewable positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northland Power 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 Northland Power and Brookfield Renewable 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 Stocks Directory module to find actively traded stocks across global markets.