Correlation Between 3M and Brown Advisory

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Can any of the company-specific risk be diversified away by investing in both 3M and Brown Advisory 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 3M and Brown Advisory into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Brown Advisory Equity, you can compare the effects of market volatilities on 3M and Brown Advisory 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 3M with a short position of Brown Advisory. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Brown Advisory.

Diversification Opportunities for 3M and Brown Advisory

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between 3M and Brown is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Brown Advisory Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Advisory Equity and 3M 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 3M Company are associated (or correlated) with Brown Advisory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Advisory Equity has no effect on the direction of 3M i.e., 3M and Brown Advisory go up and down completely randomly.

Pair Corralation between 3M and Brown Advisory

Considering the 90-day investment horizon 3M is expected to generate 1.45 times less return on investment than Brown Advisory. In addition to that, 3M is 1.09 times more volatile than Brown Advisory Equity. It trades about 0.1 of its total potential returns per unit of risk. Brown Advisory Equity is currently generating about 0.16 per unit of volatility. If you would invest  1,403  in Brown Advisory Equity on August 29, 2022 and sell it today you would earn a total of  63.00  from holding Brown Advisory Equity or generate 4.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy95.45%
ValuesDaily Returns

3M Company  vs.  Brown Advisory Equity

 Performance (%) 
       Timeline  
3M Company 
3M Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady primary indicators, 3M is not utilizing all of its potentials. The new stock price chaos, may contribute to medium-term losses for the stakeholders.

3M Price Channel

Brown Advisory Equity 
Brown Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Brown Advisory Equity are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Brown Advisory is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Brown Price Channel

3M and Brown Advisory Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 3M and Brown Advisory

The main advantage of trading using opposite 3M and Brown Advisory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Brown Advisory 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 Brown Advisory will offset losses from the drop in Brown Advisory's long position.
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The idea behind 3M Company and Brown Advisory Equity 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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