Correlation Between Baird Quality and Baird Aggregate

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

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

Diversification Opportunities for Baird Quality and Baird Aggregate

0.84

Correlation Coefficient

Baird Quality  Baird Aggregate

Very poor diversification

The 3 months correlation between Baird and Baird is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Baird Quality Intermediate and Baird Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Aggregate Bond and Baird Quality 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 Quality Intermediate are associated (or correlated) with Baird Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Aggregate Bond has no effect on the direction of Baird Quality i.e., Baird Quality and Baird Aggregate go up and down completely randomly.

Pair Corralation between Baird Quality and Baird Aggregate

Assuming the 90 days horizon Baird Quality Intermediate is expected to generate 0.53 times more return on investment than Baird Aggregate. However, Baird Quality Intermediate is 1.88 times less risky than Baird Aggregate. It trades about 0.01 of its potential returns per unit of risk. Baird Aggregate Bond is currently generating about -0.06 per unit of risk. If you would invest  1,138  in Baird Quality Intermediate on August 31, 2024 and sell it today you would earn a total of  1.00  from holding Baird Quality Intermediate or generate 0.09% return on investment over 90 days.

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

Baird Quality Intermediate  vs.  Baird Aggregate Bond

Baird Quality Interm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baird Quality Intermediate has generated negative risk-adjusted returns adding no value to fund investors. 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.

Baird Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baird Aggregate Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Baird Aggregate 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 Quality and Baird Aggregate

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

The idea behind Baird Quality Intermediate and Baird Aggregate Bond 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.