Correlation Between Scharf Fund and Baron Small

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

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

Diversification Opportunities for Scharf Fund and Baron Small

0.9

Correlation Coefficient

Scharf Fund  Baron Small

Almost no diversification

The 3 months correlation between Scharf and Baron is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Scharf Fund Retail and Baron Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Small Cap and Scharf Fund 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 Scharf Fund Retail are associated (or correlated) with Baron Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Small Cap has no effect on the direction of Scharf Fund i.e., Scharf Fund and Baron Small go up and down completely randomly.

Pair Corralation between Scharf Fund and Baron Small

Assuming the 90 days horizon Scharf Fund is expected to generate 2.36 times less return on investment than Baron Small. But when comparing it to its historical volatility, Scharf Fund Retail is 1.83 times less risky than Baron Small. It trades about 0.15 of its potential returns per unit of risk. Baron Small Cap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,529  in Baron Small Cap on September 4, 2024 and sell it today you would earn a total of  485.00  from holding Baron Small Cap or generate 13.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Scharf Fund Retail  vs.  Baron Small Cap

Scharf Fund Retail

Risk-Adjusted Performance

11 of 100

Good

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

Baron Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scharf Fund and Baron Small

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

The idea behind Scharf Fund Retail and Baron Small Cap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.