Correlation Between Baron Asset and Baron Growth

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

By analyzing existing cross correlation between Baron Asset Fund and Baron Growth Fund, you can compare the effects of market volatilities on Baron Asset and Baron Growth 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 Baron Asset with a short position of Baron Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baron Asset and Baron Growth.

Diversification Opportunities for Baron Asset and Baron Growth

0.86

Correlation Coefficient

Baron Asset  Baron Growth

Very poor diversification

The 3 months correlation between Baron and Baron is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Baron Asset Fund and Baron Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Growth and Baron Asset 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 Baron Asset Fund are associated (or correlated) with Baron Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Growth has no effect on the direction of Baron Asset i.e., Baron Asset and Baron Growth go up and down completely randomly.

Pair Corralation between Baron Asset and Baron Growth

Assuming the 90 days horizon Baron Asset Fund is expected to generate 0.94 times more return on investment than Baron Growth. However, Baron Asset Fund is 1.06 times less risky than Baron Growth. It trades about 0.19 of its potential returns per unit of risk. Baron Growth Fund is currently generating about 0.11 per unit of risk. If you would invest  11,010  in Baron Asset Fund on September 4, 2024 and sell it today you would earn a total of  1,077  from holding Baron Asset Fund or generate 9.78% return on investment over 90 days.

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

Baron Asset Fund  vs.  Baron Growth Fund

Baron Asset Fund

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Asset Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Baron Asset may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Baron Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Growth Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Baron Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Baron Asset and Baron Growth

The main advantage of trading using opposite Baron Asset and Baron Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baron Asset position performs unexpectedly, Baron Growth 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 Baron Growth will offset losses from the drop in Baron Growth's long position.

The idea behind Baron Asset Fund and Baron Growth Fund 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.