Correlation Between GM and Brown Capital
Can any of the company-specific risk be diversified away by investing in both GM and Brown Capital 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 GM and Brown Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and The Brown Capital, you can compare the effects of market volatilities on GM and Brown Capital 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 GM with a short position of Brown Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Brown Capital.
Diversification Opportunities for GM and Brown Capital
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Brown is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Brown Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Capital and GM 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 General Motors are associated (or correlated) with Brown Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Capital has no effect on the direction of GM i.e., GM and Brown Capital go up and down completely randomly.
Pair Corralation between GM and Brown Capital
Allowing for the 90-day total investment horizon GM is expected to generate 1.52 times less return on investment than Brown Capital. In addition to that, GM is 1.75 times more volatile than The Brown Capital. It trades about 0.13 of its total potential returns per unit of risk. The Brown Capital is currently generating about 0.35 per unit of volatility. If you would invest 7,477 in The Brown Capital on August 30, 2024 and sell it today you would earn a total of 929.00 from holding The Brown Capital or generate 12.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. The Brown Capital
Performance |
| Timeline |
| General Motors |
| Brown Capital |
GM and Brown Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Brown Capital
The main advantage of trading using opposite GM and Brown Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Brown Capital 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 Capital will offset losses from the drop in Brown Capital's long position.The idea behind General Motors and The Brown Capital 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 Capital vs. Pimco Moditiesplus Strategy | Brown Capital vs. International Fund International | Brown Capital vs. Cohen Steers Real | Brown Capital vs. New World Fund |
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 the Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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