Correlation Between American Funds and Baron Emerging

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

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

Diversification Opportunities for American Funds and Baron Emerging

0.89

Correlation Coefficient

American Funds  Baron Emerging

Very poor diversification

The 3 months correlation between American and Baron is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Funds New and Baron Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Emerging Markets and American Funds 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 American Funds New are associated (or correlated) with Baron Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Emerging Markets has no effect on the direction of American Funds i.e., American Funds and Baron Emerging go up and down completely randomly.

Pair Corralation between American Funds and Baron Emerging

Assuming the 90 days horizon American Funds New is expected to under-perform the Baron Emerging. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Funds New is 1.0 times less risky than Baron Emerging. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Baron Emerging Markets is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  1,629  in Baron Emerging Markets on September 28, 2024 and sell it today you would lose (103.00) from holding Baron Emerging Markets or give up 6.32% of portfolio value over 90 days.

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

American Funds New  vs.  Baron Emerging Markets

American Funds New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds New 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.

Baron Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baron Emerging Markets 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 American Funds and Baron Emerging

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

The idea behind American Funds New and Baron 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.