Correlation Between Small Cap and Baird Short-term

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

By analyzing existing cross correlation between Small Cap Core and Baird Short Term Bond, you can compare the effects of market volatilities on Small Cap and Baird Short-term 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 Small Cap with a short position of Baird Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Baird Short-term.

Diversification Opportunities for Small Cap and Baird Short-term

0.41

Correlation Coefficient

Small Cap  Baird Short-term

Very weak diversification

The 3 months correlation between Small and Baird is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Baird Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Short Term and Small Cap 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 Small Cap Core are associated (or correlated) with Baird Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Short Term has no effect on the direction of Small Cap i.e., Small Cap and Baird Short-term go up and down completely randomly.

Pair Corralation between Small Cap and Baird Short-term

Assuming the 90 days horizon Small Cap Core is expected to generate 10.53 times more return on investment than Baird Short-term. However, Small Cap is 10.53 times more volatile than Baird Short Term Bond. It trades about 0.02 of its potential returns per unit of risk. Baird Short Term Bond is currently generating about 0.14 per unit of risk. If you would invest  1,128  in Small Cap Core on October 5, 2024 and sell it today you would earn a total of  65.00  from holding Small Cap Core or generate 5.76% return on investment over 90 days.

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

Small Cap Core  vs.  Baird Short Term Bond

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core 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 basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Baird Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Cap and Baird Short-term

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

The idea behind Small Cap Core and Baird Short Term Bond 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.