Correlation Between Baron Small and Baron Durable

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

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

Diversification Opportunities for Baron Small and Baron Durable

0.71

Correlation Coefficient

Baron Small  Baron Durable

Poor diversification

The 3 months correlation between Baron and Baron is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Baron Small Cap and Baron Durable Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Durable Advantage and Baron Small 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 Small Cap are associated (or correlated) with Baron Durable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Durable Advantage has no effect on the direction of Baron Small i.e., Baron Small and Baron Durable go up and down completely randomly.

Pair Corralation between Baron Small and Baron Durable

Assuming the 90 days horizon Baron Small Cap is expected to under-perform the Baron Durable. In addition to that, Baron Small is 1.03 times more volatile than Baron Durable Advantage. It trades about -0.09 of its total potential returns per unit of risk. Baron Durable Advantage is currently generating about -0.07 per unit of volatility. If you would invest  2,877  in Baron Durable Advantage on December 20, 2024 and sell it today you would lose (149.00) from holding Baron Durable Advantage or give up 5.18% of portfolio value over 90 days.

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

Baron Small Cap  vs.  Baron Durable Advantage

Baron Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baron Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Baron Durable Advantage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baron Durable Advantage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Baron Durable 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 Small and Baron Durable

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

The idea behind Baron Small Cap and Baron Durable Advantage 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.