Correlation Between GM and Brown Advisory

Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Brown Advisory into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General Motors and Brown Advisory Tax Exempt, you can compare the effects of market volatilities on GM 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 GM with a short position of Brown Advisory. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Brown Advisory.

Diversification Opportunities for GM and Brown Advisory

-0.49

Correlation Coefficient

GM  Brown Advisory

Very good diversification

The 3 months correlation between GM and BROWN is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Brown Advisory Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Advisory Tax 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 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 Tax has no effect on the direction of GM i.e., GM and Brown Advisory go up and down completely randomly.

Pair Corralation between GM and Brown Advisory

Allowing for the 90-day total investment horizon General Motors is expected to generate 10.42 times more return on investment than Brown Advisory. However, GM is 10.42 times more volatile than Brown Advisory Tax Exempt. It trades about 0.12 of its potential returns per unit of risk. Brown Advisory Tax Exempt is currently generating about 0.24 per unit of risk. If you would invest  5,197  in General Motors on August 31, 2024 and sell it today you would earn a total of  362.00  from holding General Motors or generate 6.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

General Motors  vs.  Brown Advisory Tax Exempt

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Brown Advisory Tax

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Brown Advisory Tax Exempt are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Brown Advisory is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Brown Advisory

The main advantage of trading using opposite GM and Brown Advisory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Brown Advisory Tax Exempt 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.