Correlation Between Clearbridge Large and Brown Advisory

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

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

Diversification Opportunities for Clearbridge Large and Brown Advisory

0.93

Correlation Coefficient

Clearbridge Large  Brown Advisory

Almost no diversification

The 3 months correlation between Clearbridge and Brown is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Clearbridge Large Cap and Brown Advisory Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Advisory Small and Clearbridge Large 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 Clearbridge Large Cap 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 Small has no effect on the direction of Clearbridge Large i.e., Clearbridge Large and Brown Advisory go up and down completely randomly.

Pair Corralation between Clearbridge Large and Brown Advisory

Assuming the 90 days horizon Clearbridge Large is expected to generate 1.26 times less return on investment than Brown Advisory. But when comparing it to its historical volatility, Clearbridge Large Cap is 1.37 times less risky than Brown Advisory. It trades about 0.12 of its potential returns per unit of risk. Brown Advisory Small Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,341  in Brown Advisory Small Cap on September 13, 2024 and sell it today you would earn a total of  147.00  from holding Brown Advisory Small Cap or generate 6.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Clearbridge Large Cap  vs.  Brown Advisory Small Cap

Clearbridge Large Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Clearbridge Large Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Clearbridge Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Brown Advisory Small

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brown Advisory Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Brown Advisory may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Clearbridge Large and Brown Advisory

The main advantage of trading using opposite Clearbridge Large and Brown Advisory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clearbridge Large 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 Clearbridge Large Cap and Brown Advisory Small Cap 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.