Correlation Between Baird Smallcap and Baird Aggregate

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

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

Diversification Opportunities for Baird Smallcap and Baird Aggregate

-0.19

Correlation Coefficient

Baird Smallcap  Baird Aggregate

Good diversification

The 3 months correlation between Baird and Baird is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Baird Smallcap Value and Baird Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Aggregate Bond and Baird Smallcap 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 Smallcap Value are associated (or correlated) with Baird Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Aggregate Bond has no effect on the direction of Baird Smallcap i.e., Baird Smallcap and Baird Aggregate go up and down completely randomly.

Pair Corralation between Baird Smallcap and Baird Aggregate

Assuming the 90 days horizon Baird Smallcap Value is expected to under-perform the Baird Aggregate. In addition to that, Baird Smallcap is 3.67 times more volatile than Baird Aggregate Bond. It trades about -0.13 of its total potential returns per unit of risk. Baird Aggregate Bond is currently generating about -0.42 per unit of volatility. If you would invest  1,029  in Baird Aggregate Bond on October 6, 2024 and sell it today you would lose (25.00) from holding Baird Aggregate Bond or give up 2.43% of portfolio value over 90 days.

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

Baird Smallcap Value  vs.  Baird Aggregate Bond

Baird Smallcap Value

Risk-Adjusted Performance

14 of 100

Good

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

Baird Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Baird Smallcap and Baird Aggregate

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

The idea behind Baird Smallcap Value and Baird Aggregate Bond 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.