Correlation Between Brookfield Business and Trinity Industries

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

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

Diversification Opportunities for Brookfield Business and Trinity Industries

0.83

Correlation Coefficient

Brookfield Business  Trinity Industries

Very poor diversification

The 3 months correlation between Brookfield and Trinity is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Business Partners and Trinity Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trinity Industries and Brookfield Business 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 Brookfield Business Partners are associated (or correlated) with Trinity Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trinity Industries has no effect on the direction of Brookfield Business i.e., Brookfield Business and Trinity Industries go up and down completely randomly.

Pair Corralation between Brookfield Business and Trinity Industries

Considering the 90-day investment horizon Brookfield Business is expected to generate 1.53 times less return on investment than Trinity Industries. In addition to that, Brookfield Business is 1.05 times more volatile than Trinity Industries. It trades about 0.05 of its total potential returns per unit of risk. Trinity Industries is currently generating about 0.08 per unit of volatility. If you would invest  2,174  in Trinity Industries on August 31, 2024 and sell it today you would earn a total of  1,596  from holding Trinity Industries or generate 73.41% return on investment over 90 days.

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

Brookfield Business Partners  vs.  Trinity Industries

Brookfield Business

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Partners are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Brookfield Business unveiled solid returns over the last few months and may actually be approaching a breakup point.

Trinity Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Trinity Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brookfield Business and Trinity Industries

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

The idea behind Brookfield Business Partners and Trinity Industries 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 Global Correlations module to find global opportunities by holding instruments from different markets.