Correlation Between Transamerica Small and Baron Health

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

By analyzing existing cross correlation between Transamerica Small Cap and Baron Health Care, you can compare the effects of market volatilities on Transamerica Small and Baron Health 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 Transamerica Small with a short position of Baron Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Small and Baron Health.

Diversification Opportunities for Transamerica Small and Baron Health

0.53

Correlation Coefficient

Transamerica Small  Baron Health

Very weak diversification

The 3 months correlation between Transamerica and Baron is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Small Cap and Baron Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Health Care and Transamerica Small 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 Transamerica Small Cap are associated (or correlated) with Baron Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Health Care has no effect on the direction of Transamerica Small i.e., Transamerica Small and Baron Health go up and down completely randomly.

Pair Corralation between Transamerica Small and Baron Health

Assuming the 90 days horizon Transamerica Small Cap is expected to under-perform the Baron Health. In addition to that, Transamerica Small is 5.36 times more volatile than Baron Health Care. It trades about -0.28 of its total potential returns per unit of risk. Baron Health Care is currently generating about -0.19 per unit of volatility. If you would invest  2,033  in Baron Health Care on October 9, 2024 and sell it today you would lose (69.00) from holding Baron Health Care or give up 3.39% of portfolio value over 90 days.

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

Transamerica Small Cap  vs.  Baron Health Care

Transamerica Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica 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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Baron Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baron Health Care has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Transamerica Small and Baron Health

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

The idea behind Transamerica Small Cap and Baron Health Care 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.