Correlation Between Marsh McLennan and Brown Brown
Can any of the company-specific risk be diversified away by investing in both Marsh McLennan and Brown Brown 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 Marsh McLennan and Brown Brown into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marsh McLennan Companies and Brown Brown, you can compare the effects of market volatilities on Marsh McLennan and Brown Brown 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 Marsh McLennan with a short position of Brown Brown. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marsh McLennan and Brown Brown.
Diversification Opportunities for Marsh McLennan and Brown Brown
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Marsh and Brown is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Marsh McLennan Companies and Brown Brown in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Brown and Marsh McLennan 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 Marsh McLennan Companies are associated (or correlated) with Brown Brown. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Brown has no effect on the direction of Marsh McLennan i.e., Marsh McLennan and Brown Brown go up and down completely randomly.
Pair Corralation between Marsh McLennan and Brown Brown
Considering the 90-day investment horizon Marsh McLennan is expected to generate 1.69 times less return on investment than Brown Brown. But when comparing it to its historical volatility, Marsh McLennan Companies is 1.07 times less risky than Brown Brown. It trades about 0.23 of its potential returns per unit of risk. Brown Brown is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 8,177 in Brown Brown on February 12, 2024 and sell it today you would earn a total of 530.00 from holding Brown Brown or generate 6.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Marsh McLennan Companies vs. Brown Brown
Performance |
| Timeline |
| Marsh McLennan Companies |
| Brown Brown |
Marsh McLennan and Brown Brown Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Marsh McLennan and Brown Brown
The main advantage of trading using opposite Marsh McLennan and Brown Brown positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marsh McLennan position performs unexpectedly, Brown Brown 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 Brown will offset losses from the drop in Brown Brown's long position.The idea behind Marsh McLennan Companies and Brown Brown 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.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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