Correlation Between Barings Active and Broad Cap

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

By analyzing existing cross correlation between Barings Active Short and Broad Cap Value, you can compare the effects of market volatilities on Barings Active and Broad Cap 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 Barings Active with a short position of Broad Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barings Active and Broad Cap.

Diversification Opportunities for Barings Active and Broad Cap

0.51

Correlation Coefficient

Barings Active  Broad Cap

Very weak diversification

The 3 months correlation between Barings and Broad is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Barings Active Short and Broad Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broad Cap Value and Barings Active 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 Barings Active Short are associated (or correlated) with Broad Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broad Cap Value has no effect on the direction of Barings Active i.e., Barings Active and Broad Cap go up and down completely randomly.

Pair Corralation between Barings Active and Broad Cap

Assuming the 90 days horizon Barings Active is expected to generate 9.56 times less return on investment than Broad Cap. But when comparing it to its historical volatility, Barings Active Short is 5.88 times less risky than Broad Cap. It trades about 0.08 of its potential returns per unit of risk. Broad Cap Value is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,485  in Broad Cap Value on September 13, 2024 and sell it today you would earn a total of  79.00  from holding Broad Cap Value or generate 5.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Barings Active Short  vs.  Broad Cap Value

Barings Active Short

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barings Active Short are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Barings Active is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Broad Cap Value

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Broad Cap Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Broad Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barings Active and Broad Cap

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

The idea behind Barings Active Short and Broad Cap Value 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.