Correlation Between Nasdaq-100 Fund and Baron Small

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100 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 Nasdaq-100 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 Nasdaq 100 Fund Investor and Baron Small Cap, you can compare the effects of market volatilities on Nasdaq-100 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 Nasdaq-100 Fund with a short position of Baron Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 Fund and Baron Small.

Diversification Opportunities for Nasdaq-100 Fund and Baron Small

0.85

Correlation Coefficient

Nasdaq-100 Fund  Baron Small

Very poor diversification

The 3 months correlation between Nasdaq-100 and Baron is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Fund Investor 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 Nasdaq-100 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 Nasdaq 100 Fund Investor 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 Nasdaq-100 Fund i.e., Nasdaq-100 Fund and Baron Small go up and down completely randomly.

Pair Corralation between Nasdaq-100 Fund and Baron Small

Assuming the 90 days horizon Nasdaq 100 Fund Investor is expected to generate 0.77 times more return on investment than Baron Small. However, Nasdaq 100 Fund Investor is 1.3 times less risky than Baron Small. It trades about 0.01 of its potential returns per unit of risk. Baron Small Cap is currently generating about -0.11 per unit of risk. If you would invest  8,670  in Nasdaq 100 Fund Investor on November 20, 2024 and sell it today you would lose (13.00) from holding Nasdaq 100 Fund Investor or give up 0.15% of portfolio value over 90 days.

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

Nasdaq 100 Fund Investor  vs.  Baron Small Cap

Nasdaq 100 Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Nasdaq-100 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

Very Weak

Over the last 90 days Baron Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Nasdaq-100 Fund and Baron Small

The main advantage of trading using opposite Nasdaq-100 Fund and Baron Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100 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 Nasdaq 100 Fund Investor 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.