Correlation Between Brown Advisory and Merck

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

Diversification Opportunities for Brown Advisory and Merck

  Correlation Coefficient

Very weak diversification

The 3 months correlation between Brown and Merck is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Brown Advisory Equity and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Brown Advisory 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 Brown Advisory Equity are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Brown Advisory i.e., Brown Advisory and Merck go up and down completely randomly.

Pair Corralation between Brown Advisory and Merck

Assuming the 90 days horizon Brown Advisory is expected to generate 1.61 times less return on investment than Merck. In addition to that, Brown Advisory is 1.13 times more volatile than Merck Company. It trades about 0.24 of its total potential returns per unit of risk. Merck Company is currently generating about 0.43 per unit of volatility. If you would invest  8,612  in Merck Company on August 31, 2022 and sell it today you would earn a total of  2,262  from holding Merck Company or generate 26.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Brown Advisory Equity  vs.  Merck Company

 Performance (%) 
Brown Advisory Equity 
Brown Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Brown Advisory Equity are ranked lower than 5 (%) 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

Merck Company 
Merck Performance
23 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

Brown Advisory and Merck Volatility Contrast

   Predicted Return Density   

Pair Trading with Brown Advisory and Merck

The main advantage of trading using opposite Brown Advisory and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Advisory position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.
Brown Advisory vs. Vanguard Institutional Index
The idea behind Brown Advisory Equity and Merck Company 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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