Correlation Between Baron Small and Baron Opportunity

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

Diversification Opportunities for Baron Small and Baron Opportunity

0.83

Correlation Coefficient

Baron Small  Baron Opportunity

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 Small Cap and Baron Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Opportunity 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 Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Opportunity has no effect on the direction of Baron Small i.e., Baron Small and Baron Opportunity go up and down completely randomly.

Pair Corralation between Baron Small and Baron Opportunity

Assuming the 90 days horizon Baron Small Cap is expected to generate 0.72 times more return on investment than Baron Opportunity. However, Baron Small Cap is 1.38 times less risky than Baron Opportunity. It trades about -0.09 of its potential returns per unit of risk. Baron Opportunity Fund is currently generating about -0.09 per unit of risk. If you would invest  3,341  in Baron Small Cap on December 20, 2024 and sell it today you would lose (232.00) from holding Baron Small Cap or give up 6.94% of portfolio value over 90 days.

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

Baron Small Cap  vs.  Baron Opportunity Fund

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 Opportunity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baron Opportunity Fund 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.

Pair Trading with Baron Small and Baron Opportunity

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

The idea behind Baron Small Cap and Baron Opportunity 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .