Correlation Between Baron Emerging and Baron Small

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

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

Diversification Opportunities for Baron Emerging and Baron Small

0.47

Correlation Coefficient

Baron Emerging  Baron Small

Very weak diversification

The 3 months correlation between Baron and Baron is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Baron Emerging Markets and Baron Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Small Cap and Baron Emerging 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 Emerging Markets are associated (or correlated) with Baron Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Small Cap has no effect on the direction of Baron Emerging i.e., Baron Emerging and Baron Small go up and down completely randomly.

Pair Corralation between Baron Emerging and Baron Small

Assuming the 90 days horizon Baron Emerging Markets is expected to under-perform the Baron Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Baron Emerging Markets is 1.2 times less risky than Baron Small. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Baron Small Cap is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  3,376  in Baron Small Cap on October 26, 2024 and sell it today you would earn a total of  181.00  from holding Baron Small Cap or generate 5.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Baron Emerging Markets  vs.  Baron Small Cap

Baron Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Baron Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baron Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Baron Small 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 Emerging and Baron Small

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

The idea behind Baron Emerging Markets and Baron Small Cap 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.