Correlation Between DOW and Brown Advisory

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

Diversification Opportunities for DOW and Brown Advisory

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and Brown is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding DOW 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 DOW 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 DOW 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 DOW i.e., DOW and Brown Advisory go up and down completely randomly.
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Pair Corralation between DOW and Brown Advisory

Given the investment horizon of 90 days DOW is expected to generate 1.12 times less return on investment than Brown Advisory. But when comparing it to its historical volatility, DOW is 1.02 times less risky than Brown Advisory. It trades about 0.24 of its potential returns per unit of risk. Brown Advisory Equity is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,329  in Brown Advisory Equity on May 15, 2022 and sell it today you would earn a total of  168.00  from holding Brown Advisory Equity or generate 12.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Brown Advisory Equity

 Performance (%) 
       Timeline  

DOW and Brown Advisory Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

Nike vs. DOW
Semiconductor Bear vs. DOW
Essential Properties vs. DOW
Universal Health vs. DOW
Ark Innovation vs. DOW
Horizon Therapeutics vs. DOW
Prog Hldgs vs. DOW
Cto Realty vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Brown Advisory Equity

Pair trading matchups for Brown Advisory

Horizon Therapeutics vs. Brown Advisory
Essential Properties vs. Brown Advisory
Cto Realty vs. Brown Advisory
Semiconductor Bear vs. Brown Advisory
Nike vs. Brown Advisory
Rolls Royce vs. Brown Advisory
Prog Hldgs vs. Brown Advisory
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Brown Advisory as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Brown Advisory's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Brown Advisory's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Brown Advisory Equity.

Pair Trading with DOW and Brown Advisory

The main advantage of trading using opposite DOW and Brown Advisory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOW 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.

DOW

Pair trading matchups for DOW

Rolls Royce vs. DOW
Universal Health vs. DOW
Essential Properties vs. DOW
Prog Hldgs vs. DOW
Ark Innovation vs. DOW
Semiconductor Bear vs. DOW
Olema Pharmaceuticals vs. DOW
Nike vs. DOW
Horizon Therapeutics vs. DOW
Cto Realty vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
The idea behind DOW 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.

Brown Advisory Equity

Pair trading matchups for Brown Advisory

Rolls Royce vs. Brown Advisory
Prog Hldgs vs. Brown Advisory
Cto Realty vs. Brown Advisory
Universal Health vs. Brown Advisory
Ark Innovation vs. Brown Advisory
Nike vs. Brown Advisory
Essential Properties vs. Brown Advisory
Horizon Therapeutics vs. Brown Advisory
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Brown Advisory as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Brown Advisory's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Brown Advisory's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Brown Advisory Equity.
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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