Correlation Between Eafe Fund and Baillie Gifford

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

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

Diversification Opportunities for Eafe Fund and Baillie Gifford

0.41

Correlation Coefficient

Eafe Fund  Baillie Gifford

Very weak diversification

The 3 months correlation between Eafe and Baillie is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding The Eafe Fund and Baillie Gifford China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baillie Gifford China and Eafe Fund 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 The Eafe Fund are associated (or correlated) with Baillie Gifford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baillie Gifford China has no effect on the direction of Eafe Fund i.e., Eafe Fund and Baillie Gifford go up and down completely randomly.

Pair Corralation between Eafe Fund and Baillie Gifford

Assuming the 90 days horizon Eafe Fund is expected to generate 4.81 times less return on investment than Baillie Gifford. But when comparing it to its historical volatility, The Eafe Fund is 1.09 times less risky than Baillie Gifford. It trades about 0.04 of its potential returns per unit of risk. Baillie Gifford China is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  513.00  in Baillie Gifford China on December 29, 2024 and sell it today you would earn a total of  84.00  from holding Baillie Gifford China or generate 16.37% return on investment over 90 days.

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

The Eafe Fund  vs.  Baillie Gifford China

Eafe Fund

Risk-Adjusted Performance

Weak

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

Baillie Gifford China

Risk-Adjusted Performance

Good

Over the last 90 days Baillie Gifford China has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak fundamental drivers, Baillie Gifford showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eafe Fund and Baillie Gifford

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

The idea behind The Eafe Fund and Baillie Gifford China 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.