Correlation Between Baird Smallmid and Smallcap

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

By analyzing existing cross correlation between Baird Smallmid Cap and Smallcap Sp 600, you can compare the effects of market volatilities on Baird Smallmid and Smallcap 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 Baird Smallmid with a short position of Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baird Smallmid and Smallcap.

Diversification Opportunities for Baird Smallmid and Smallcap

0.26

Correlation Coefficient

Baird Smallmid  Smallcap

Modest diversification

The 3 months correlation between Baird and Smallcap is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Baird Smallmid Cap and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 and Baird Smallmid 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 Baird Smallmid Cap are associated (or correlated) with Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Baird Smallmid i.e., Baird Smallmid and Smallcap go up and down completely randomly.

Pair Corralation between Baird Smallmid and Smallcap

Assuming the 90 days horizon Baird Smallmid is expected to generate 2.31 times less return on investment than Smallcap. But when comparing it to its historical volatility, Baird Smallmid Cap is 1.31 times less risky than Smallcap. It trades about 0.1 of its potential returns per unit of risk. Smallcap Sp 600 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,692  in Smallcap Sp 600 on October 8, 2024 and sell it today you would earn a total of  243.00  from holding Smallcap Sp 600 or generate 9.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	58.06%
Values	Daily Returns

Baird Smallmid Cap  vs.  Smallcap Sp 600

Baird Smallmid Cap

Risk-Adjusted Performance

8 of 100

OK

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

Smallcap Sp 600

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Smallcap Sp 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Smallcap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baird Smallmid and Smallcap

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

The idea behind Baird Smallmid Cap and Smallcap Sp 600 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.