Correlation Between Baron Emerging and Parametric Emerging

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

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

Diversification Opportunities for Baron Emerging and Parametric Emerging

0.97

Correlation Coefficient

Baron Emerging  Parametric Emerging

Almost no diversification

The 3 months correlation between Baron and Parametric is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Baron Emerging Markets and Parametric Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parametric Emerging and Baron Emerging 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 Emerging Markets are associated (or correlated) with Parametric Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parametric Emerging has no effect on the direction of Baron Emerging i.e., Baron Emerging and Parametric Emerging go up and down completely randomly.

Pair Corralation between Baron Emerging and Parametric Emerging

Assuming the 90 days horizon Baron Emerging Markets is expected to under-perform the Parametric Emerging. In addition to that, Baron Emerging is 1.55 times more volatile than Parametric Emerging Markets. It trades about -0.11 of its total potential returns per unit of risk. Parametric Emerging Markets is currently generating about -0.11 per unit of volatility. If you would invest  1,488  in Parametric Emerging Markets on September 5, 2024 and sell it today you would lose (19.00) from holding Parametric Emerging Markets or give up 1.28% of portfolio value over 90 days.

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

Baron Emerging Markets  vs.  Parametric Emerging Markets

Baron Emerging Markets

Risk-Adjusted Performance

2 of 100

Weak

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

Parametric Emerging

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Baron Emerging and Parametric Emerging

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

The idea behind Baron Emerging Markets and Parametric Emerging Markets 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.