Correlation Between American Funds and Baird Smallcap

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

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

Diversification Opportunities for American Funds and Baird Smallcap

-0.09

Correlation Coefficient

American Funds  Baird Smallcap

Good diversification

The 3 months correlation between American and Baird is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement and Baird Smallcap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Smallcap Value and American Funds 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 American Funds Retirement are associated (or correlated) with Baird Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Smallcap Value has no effect on the direction of American Funds i.e., American Funds and Baird Smallcap go up and down completely randomly.

Pair Corralation between American Funds and Baird Smallcap

Assuming the 90 days horizon American Funds is expected to generate 4.86 times less return on investment than Baird Smallcap. But when comparing it to its historical volatility, American Funds Retirement is 3.02 times less risky than Baird Smallcap. It trades about 0.07 of its potential returns per unit of risk. Baird Smallcap Value is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,322  in Baird Smallcap Value on October 9, 2024 and sell it today you would earn a total of  327.00  from holding Baird Smallcap Value or generate 24.74% return on investment over 90 days.

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

American Funds Retirement  vs.  Baird Smallcap Value

American Funds Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with American Funds and Baird Smallcap

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

The idea behind American Funds Retirement and Baird Smallcap Value 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..