Correlation Between Barings Active and Target Retirement

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

By analyzing existing cross correlation between Barings Active Short and Target Retirement 2040, you can compare the effects of market volatilities on Barings Active and Target Retirement 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 Barings Active with a short position of Target Retirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barings Active and Target Retirement.

Diversification Opportunities for Barings Active and Target Retirement

0.76

Correlation Coefficient

Barings Active  Target Retirement

Poor diversification

The 3 months correlation between Barings and Target is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Barings Active Short and Target Retirement 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Retirement 2040 and Barings Active 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 Barings Active Short are associated (or correlated) with Target Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Retirement 2040 has no effect on the direction of Barings Active i.e., Barings Active and Target Retirement go up and down completely randomly.

Pair Corralation between Barings Active and Target Retirement

Assuming the 90 days horizon Barings Active is expected to generate 5.56 times less return on investment than Target Retirement. But when comparing it to its historical volatility, Barings Active Short is 4.18 times less risky than Target Retirement. It trades about 0.1 of its potential returns per unit of risk. Target Retirement 2040 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,339  in Target Retirement 2040 on September 12, 2024 and sell it today you would earn a total of  57.00  from holding Target Retirement 2040 or generate 4.26% return on investment over 90 days.

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

Barings Active Short  vs.  Target Retirement 2040

Barings Active Short

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barings Active Short are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Barings Active is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Target Retirement 2040

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Target Retirement 2040 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Target Retirement is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barings Active and Target Retirement

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

The idea behind Barings Active Short and Target Retirement 2040 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.