Correlation Between Baron Opportunity and Baron Partners

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

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

Diversification Opportunities for Baron Opportunity and Baron Partners

0.83

Correlation Coefficient

Baron Opportunity  Baron Partners

Very poor diversification

The 3 months correlation between Baron and Baron is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Baron Opportunity Fund and Baron Partners Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Partners and Baron Opportunity 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 Opportunity Fund are associated (or correlated) with Baron Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Partners has no effect on the direction of Baron Opportunity i.e., Baron Opportunity and Baron Partners go up and down completely randomly.

Pair Corralation between Baron Opportunity and Baron Partners

Assuming the 90 days horizon Baron Opportunity is expected to generate 6.91 times less return on investment than Baron Partners. But when comparing it to its historical volatility, Baron Opportunity Fund is 1.73 times less risky than Baron Partners. It trades about 0.05 of its potential returns per unit of risk. Baron Partners Fund is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  17,260  in Baron Partners Fund on October 7, 2024 and sell it today you would earn a total of  3,925  from holding Baron Partners Fund or generate 22.74% return on investment over 90 days.

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

Baron Opportunity Fund  vs.  Baron Partners Fund

Baron Opportunity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Opportunity Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Opportunity may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Baron Partners

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Partners Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Partners showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baron Opportunity and Baron Partners

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

The idea behind Baron Opportunity Fund and Baron Partners 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.