Correlation Between Parnassus Mid and Brown Capital

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

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

Diversification Opportunities for Parnassus Mid and Brown Capital

0.72

Correlation Coefficient

Parnassus Mid  Brown Capital

Poor diversification

The 3 months correlation between Parnassus and Brown is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Parnassus Mid Cap and The Brown Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Capital and Parnassus Mid 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 Parnassus Mid Cap 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 Parnassus Mid i.e., Parnassus Mid and Brown Capital go up and down completely randomly.

Pair Corralation between Parnassus Mid and Brown Capital

Assuming the 90 days horizon Parnassus Mid Cap is expected to generate 0.7 times more return on investment than Brown Capital. However, Parnassus Mid Cap is 1.43 times less risky than Brown Capital. It trades about -0.04 of its potential returns per unit of risk. The Brown Capital is currently generating about -0.19 per unit of risk. If you would invest  3,832  in Parnassus Mid Cap on December 26, 2024 and sell it today you would lose (101.00) from holding Parnassus Mid Cap or give up 2.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Parnassus Mid Cap  vs.  The Brown Capital

Parnassus Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parnassus Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Parnassus Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Brown Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Brown Capital has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Parnassus Mid and Brown Capital

The main advantage of trading using opposite Parnassus Mid and Brown Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Parnassus Mid 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 Parnassus Mid Cap 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.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.