Correlation Between Baron Health and State Farm

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

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

Diversification Opportunities for Baron Health and State Farm

-0.44

Correlation Coefficient

Baron Health  State Farm

Very good diversification

The 3 months correlation between Baron and State is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Baron Health Care and State Farm Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Growth and Baron Health 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 Health Care are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Growth has no effect on the direction of Baron Health i.e., Baron Health and State Farm go up and down completely randomly.

Pair Corralation between Baron Health and State Farm

Assuming the 90 days horizon Baron Health Care is expected to under-perform the State Farm. In addition to that, Baron Health is 1.49 times more volatile than State Farm Growth. It trades about -0.09 of its total potential returns per unit of risk. State Farm Growth is currently generating about 0.2 per unit of volatility. If you would invest  12,298  in State Farm Growth on September 12, 2024 and sell it today you would earn a total of  880.00  from holding State Farm Growth or generate 7.16% return on investment over 90 days.

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

Baron Health Care  vs.  State Farm Growth

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 fairly strong technical indicators, Baron Health is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

State Farm Growth

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in State Farm Growth are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, State Farm may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Baron Health and State Farm

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

The idea behind Baron Health Care and State Farm Growth 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .