Correlation Between Dow Jones and Brown Advisory

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Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Jones 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 Jones Industrial and Brown Advisory Mortgage, you can compare the effects of market volatilities on Dow Jones 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 Jones with a short position of Brown Advisory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Brown Advisory.

Diversification Opportunities for Dow Jones and Brown Advisory

-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Dow and Brown is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Brown Advisory Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Advisory Mortgage and Dow Jones 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 Jones Industrial 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 Mortgage has no effect on the direction of Dow Jones i.e., Dow Jones and Brown Advisory go up and down completely randomly.
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Pair Corralation between Dow Jones and Brown Advisory

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.7 times more return on investment than Brown Advisory. However, Dow Jones is 2.7 times more volatile than Brown Advisory Mortgage. It trades about 0.25 of its potential returns per unit of risk. Brown Advisory Mortgage is currently generating about 0.1 per unit of risk. If you would invest  4,238,757  in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of  233,449  from holding Dow Jones Industrial or generate 5.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Dow Jones Industrial  vs.  Brown Advisory Mortgage

 Performance 
       Timeline  

Dow Jones and Brown Advisory Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dow Jones and Brown Advisory

The main advantage of trading using opposite Dow Jones and Brown Advisory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.
The idea behind Dow Jones Industrial and Brown Advisory Mortgage 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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