Can any of the company-specific risk be diversified away by investing in both Baron Asset and Baron Durable 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 Baron Asset and Baron Durable into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Baron Asset Fund and Baron Durable Advantage, you can compare the effects of market volatilities on Baron Asset and Baron Durable 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 Baron Asset with a short position of Baron Durable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baron Asset and Baron Durable.
Diversification Opportunities for Baron Asset and Baron Durable
The 3 months correlation between Baron and Baron is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Baron Asset Fund and Baron Durable Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Durable Advantage and Baron Asset 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 Baron Asset Fund are associated (or correlated) with Baron Durable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Durable Advantage has no effect on the direction of Baron Asset i.e., Baron Asset and Baron Durable go up and down completely randomly.
Pair Corralation between Baron Asset and Baron Durable
Assuming the 90 days horizon Baron Asset is expected to generate 1.73 times less return on investment than Baron Durable. In addition to that, Baron Asset is 1.0 times more volatile than Baron Durable Advantage. It trades about 0.05 of its total potential returns per unit of risk. Baron Durable Advantage is currently generating about 0.09 per unit of volatility. If you would invest 1,544 in Baron Durable Advantage on March 6, 2024 and sell it today you would earn a total of 969.00 from holding Baron Durable Advantage or generate 62.76% return on investment over 90 days.
Over the last 90 days Baron Asset Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Baron Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Baron Durable Advantage are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Baron Durable is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.