Correlation Between Baron International and Baron Discovery

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

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

Diversification Opportunities for Baron International and Baron Discovery

-0.46

Correlation Coefficient

Baron International  Baron Discovery

Very good diversification

The 3 months correlation between Baron and Baron is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Baron International Growth and Baron Discovery Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Discovery and Baron International 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 International Growth are associated (or correlated) with Baron Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Discovery has no effect on the direction of Baron International i.e., Baron International and Baron Discovery go up and down completely randomly.

Pair Corralation between Baron International and Baron Discovery

Assuming the 90 days horizon Baron International Growth is expected to under-perform the Baron Discovery. But the mutual fund apears to be less risky and, when comparing its historical volatility, Baron International Growth is 2.02 times less risky than Baron Discovery. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Baron Discovery Fund is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,403  in Baron Discovery Fund on October 11, 2024 and sell it today you would lose (41.00) from holding Baron Discovery Fund or give up 1.2% of portfolio value over 90 days.

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

Baron International Growth  vs.  Baron Discovery Fund

Baron International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Baron Discovery

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Discovery Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Baron Discovery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Baron International and Baron Discovery

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

The idea behind Baron International Growth and Baron Discovery 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.