Correlation Between Long-term and Baillie Gifford

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

By analyzing existing cross correlation between Long Term Government Fund and Baillie Gifford Eafe, you can compare the effects of market volatilities on Long-term and Baillie Gifford 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 Long-term with a short position of Baillie Gifford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long-term and Baillie Gifford.

Diversification Opportunities for Long-term and Baillie Gifford

0.63

Correlation Coefficient

Long-term  Baillie Gifford

Poor diversification

The 3 months correlation between Long-term and Baillie is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Baillie Gifford Eafe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baillie Gifford Eafe and Long-term 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 Long Term Government Fund are associated (or correlated) with Baillie Gifford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baillie Gifford Eafe has no effect on the direction of Long-term i.e., Long-term and Baillie Gifford go up and down completely randomly.

Pair Corralation between Long-term and Baillie Gifford

Assuming the 90 days horizon Long Term Government Fund is expected to generate 13.72 times more return on investment than Baillie Gifford. However, Long-term is 13.72 times more volatile than Baillie Gifford Eafe. It trades about 0.03 of its potential returns per unit of risk. Baillie Gifford Eafe is currently generating about 0.03 per unit of risk. If you would invest  1,496  in Long Term Government Fund on December 4, 2024 and sell it today you would lose (54.00) from holding Long Term Government Fund or give up 3.61% of portfolio value over 90 days.

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

Long Term Government Fund  vs.  Baillie Gifford Eafe

Long Term Government

Risk-Adjusted Performance

Very Weak

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

Baillie Gifford Eafe

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baillie Gifford Eafe are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Baillie Gifford is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Long-term and Baillie Gifford

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

The idea behind Long Term Government Fund and Baillie Gifford Eafe 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.