Correlation Between Baron Health and Health Care

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

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

Diversification Opportunities for Baron Health and Health Care

0.22

Correlation Coefficient

Baron Health  Health Care

Modest diversification

The 3 months correlation between Baron and Health is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Baron Health Care and Health Care Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Ultrasector and Baron Health 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 Health Care are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Ultrasector has no effect on the direction of Baron Health i.e., Baron Health and Health Care go up and down completely randomly.

Pair Corralation between Baron Health and Health Care

Assuming the 90 days horizon Baron Health Care is expected to under-perform the Health Care. But the mutual fund apears to be less risky and, when comparing its historical volatility, Baron Health Care is 1.27 times less risky than Health Care. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Health Care Ultrasector is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  9,790  in Health Care Ultrasector on December 20, 2024 and sell it today you would earn a total of  916.00  from holding Health Care Ultrasector or generate 9.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Baron Health Care  vs.  Health Care Ultrasector

Baron Health Care

Risk-Adjusted Performance

Very Weak

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

Health Care Ultrasector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Health Care Ultrasector are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Health Care may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Baron Health and Health Care

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

The idea behind Baron Health Care and Health Care Ultrasector 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.