Correlation Between Baron Discovery and Baron Small

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

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

Diversification Opportunities for Baron Discovery and Baron Small

0.46

Correlation Coefficient

Baron Discovery  Baron Small

Very weak diversification

The 3 months correlation between Baron and Baron is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Baron Discovery Fund 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 Baron Discovery 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 Discovery Fund 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 Baron Discovery i.e., Baron Discovery and Baron Small go up and down completely randomly.

Pair Corralation between Baron Discovery and Baron Small

Assuming the 90 days horizon Baron Discovery Fund is expected to generate 0.66 times more return on investment than Baron Small. However, Baron Discovery Fund is 1.52 times less risky than Baron Small. It trades about 0.11 of its potential returns per unit of risk. Baron Small Cap is currently generating about -0.08 per unit of risk. If you would invest  3,067  in Baron Discovery Fund on September 28, 2024 and sell it today you would earn a total of  263.00  from holding Baron Discovery Fund or generate 8.58% return on investment over 90 days.

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

Baron Discovery Fund  vs.  Baron Small Cap

Baron Discovery

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Discovery Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Discovery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Baron Small Cap

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Fund's basic 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 Baron Discovery and Baron Small

The main advantage of trading using opposite Baron Discovery and Baron Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baron Discovery 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 Baron Discovery Fund 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.