Correlation Between Baron Health and Pimco Long-term

Can any of the company-specific risk be diversified away by investing in both Baron Health and Pimco Long-term 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 Pimco Long-term 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 Pimco Long Term Government, you can compare the effects of market volatilities on Baron Health and Pimco Long-term 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 Pimco Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baron Health and Pimco Long-term.

Diversification Opportunities for Baron Health and Pimco Long-term

0.75

Correlation Coefficient

Baron Health  Pimco Long-term

Poor diversification

The 3 months correlation between Baron and Pimco is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Baron Health Care and Pimco Long Term Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Long Term 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 Pimco Long-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Long Term has no effect on the direction of Baron Health i.e., Baron Health and Pimco Long-term go up and down completely randomly.

Pair Corralation between Baron Health and Pimco Long-term

Assuming the 90 days horizon Baron Health is expected to generate 13.96 times less return on investment than Pimco Long-term. But when comparing it to its historical volatility, Baron Health Care is 16.17 times less risky than Pimco Long-term. It trades about 0.04 of its potential returns per unit of risk. Pimco Long Term Government is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,521  in Pimco Long Term Government on October 24, 2024 and sell it today you would lose (150.00) from holding Pimco Long Term Government or give up 9.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Baron Health Care  vs.  Pimco Long Term Government

Baron Health Care

Risk-Adjusted Performance

0 of 100

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.

Pimco Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pimco Long Term Government has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pimco Long-term 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 Health and Pimco Long-term

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

The idea behind Baron Health Care and Pimco Long Term Government 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.