Correlation Between Baron Durable and Baron Opportunity

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

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

Diversification Opportunities for Baron Durable and Baron Opportunity

0.95

Correlation Coefficient

Baron Durable  Baron Opportunity

Almost no diversification

The 3 months correlation between Baron and Baron is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Baron Durable Advantage and Baron Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Opportunity and Baron Durable 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 Durable Advantage are associated (or correlated) with Baron Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Opportunity has no effect on the direction of Baron Durable i.e., Baron Durable and Baron Opportunity go up and down completely randomly.

Pair Corralation between Baron Durable and Baron Opportunity

Assuming the 90 days horizon Baron Durable is expected to generate 2.03 times less return on investment than Baron Opportunity. But when comparing it to its historical volatility, Baron Durable Advantage is 1.33 times less risky than Baron Opportunity. It trades about 0.16 of its potential returns per unit of risk. Baron Opportunity Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  4,347  in Baron Opportunity Fund on September 3, 2024 and sell it today you would earn a total of  837.00  from holding Baron Opportunity Fund or generate 19.25% return on investment over 90 days.

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

Baron Durable Advantage  vs.  Baron Opportunity Fund

Baron Durable Advantage

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Durable Advantage are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Baron Durable may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Baron Opportunity

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Opportunity Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Baron Opportunity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baron Durable and Baron Opportunity

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

The idea behind Baron Durable Advantage and Baron Opportunity 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.