Correlation Between Tax Managed and Baird Small/mid

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

By analyzing existing cross correlation between Tax Managed Mid Small and Baird Smallmid Cap, you can compare the effects of market volatilities on Tax Managed and Baird Small/mid 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 Tax Managed with a short position of Baird Small/mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Managed and Baird Small/mid.

Diversification Opportunities for Tax Managed and Baird Small/mid

0.78

Correlation Coefficient

Tax Managed  Baird Small/mid

Poor diversification

The 3 months correlation between Tax and Baird is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Mid Small and Baird Smallmid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Smallmid Cap and Tax Managed 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 Tax Managed Mid Small are associated (or correlated) with Baird Small/mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Smallmid Cap has no effect on the direction of Tax Managed i.e., Tax Managed and Baird Small/mid go up and down completely randomly.

Pair Corralation between Tax Managed and Baird Small/mid

Assuming the 90 days horizon Tax Managed Mid Small is expected to under-perform the Baird Small/mid. In addition to that, Tax Managed is 1.2 times more volatile than Baird Smallmid Cap. It trades about -0.27 of its total potential returns per unit of risk. Baird Smallmid Cap is currently generating about -0.2 per unit of volatility. If you would invest  1,821  in Baird Smallmid Cap on October 8, 2024 and sell it today you would lose (71.00) from holding Baird Smallmid Cap or give up 3.9% of portfolio value over 90 days.

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

Tax Managed Mid Small  vs.  Baird Smallmid Cap

Tax Managed Mid

Risk-Adjusted Performance

0 of 100

Very Weak

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

Baird Smallmid Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baird Smallmid Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Baird Small/mid may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tax Managed and Baird Small/mid

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

The idea behind Tax Managed Mid Small and Baird Smallmid 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.