Correlation Between American Beacon and Brown Advisory

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

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

Diversification Opportunities for American Beacon and Brown Advisory

0.65

Correlation Coefficient

American Beacon  Brown Advisory

Poor diversification

The 3 months correlation between American and Brown is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Bridgeway and Brown Advisory Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Advisory Funds and American Beacon 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 American Beacon Bridgeway 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 Funds has no effect on the direction of American Beacon i.e., American Beacon and Brown Advisory go up and down completely randomly.

Pair Corralation between American Beacon and Brown Advisory

Assuming the 90 days horizon American Beacon Bridgeway is expected to generate 0.69 times more return on investment than Brown Advisory. However, American Beacon Bridgeway is 1.46 times less risky than Brown Advisory. It trades about 0.04 of its potential returns per unit of risk. Brown Advisory Funds is currently generating about -0.03 per unit of risk. If you would invest  2,258  in American Beacon Bridgeway on December 29, 2024 and sell it today you would earn a total of  39.00  from holding American Beacon Bridgeway or generate 1.73% return on investment over 90 days.

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

American Beacon Bridgeway  vs.  Brown Advisory Funds

American Beacon Bridgeway

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Bridgeway are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, American Beacon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Brown Advisory Funds

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brown Advisory Funds has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with American Beacon and Brown Advisory

The main advantage of trading using opposite American Beacon and Brown Advisory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon 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 American Beacon Bridgeway and Brown Advisory Funds 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.