Correlation Between Baird Smallcap and Baird Quality

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

By analyzing existing cross correlation between Baird Smallcap Value and Baird Quality Intermediate, you can compare the effects of market volatilities on Baird Smallcap and Baird Quality 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 Baird Smallcap with a short position of Baird Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baird Smallcap and Baird Quality.

Diversification Opportunities for Baird Smallcap and Baird Quality

-0.41

Correlation Coefficient

Baird Smallcap  Baird Quality

Very good diversification

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

Pair Corralation between Baird Smallcap and Baird Quality

Assuming the 90 days horizon Baird Smallcap Value is expected to generate 7.31 times more return on investment than Baird Quality. However, Baird Smallcap is 7.31 times more volatile than Baird Quality Intermediate. It trades about 0.29 of its potential returns per unit of risk. Baird Quality Intermediate is currently generating about 0.03 per unit of risk. If you would invest  1,384  in Baird Smallcap Value on September 2, 2024 and sell it today you would earn a total of  328.00  from holding Baird Smallcap Value or generate 23.7% return on investment over 90 days.

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

Baird Smallcap Value  vs.  Baird Quality Intermediate

Baird Smallcap Value

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Baird Smallcap Value are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Baird Smallcap showed solid returns over the last few months and may actually be approaching a breakup point.

Baird Quality Interm

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Baird Quality Intermediate are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Baird Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Baird Smallcap and Baird Quality

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

The idea behind Baird Smallcap Value and Baird Quality Intermediate 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.