Correlation Between Microsoft and Baron Wealthbuilder

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

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

Diversification Opportunities for Microsoft and Baron Wealthbuilder

0.74

Correlation Coefficient

Microsoft  Baron Wealthbuilder

Poor diversification

The 3 months correlation between Microsoft and Baron is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Baron Wealthbuilder Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Wealthbuilder and Microsoft 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 Microsoft are associated (or correlated) with Baron Wealthbuilder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Wealthbuilder has no effect on the direction of Microsoft i.e., Microsoft and Baron Wealthbuilder go up and down completely randomly.

Pair Corralation between Microsoft and Baron Wealthbuilder

Given the investment horizon of 90 days Microsoft is expected to generate 0.99 times more return on investment than Baron Wealthbuilder. However, Microsoft is 1.01 times less risky than Baron Wealthbuilder. It trades about 0.07 of its potential returns per unit of risk. Baron Wealthbuilder Fund is currently generating about 0.05 per unit of risk. If you would invest  42,346  in Microsoft on September 29, 2024 and sell it today you would earn a total of  707.00  from holding Microsoft or generate 1.67% return on investment over 90 days.

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

Microsoft  vs.  Baron Wealthbuilder Fund

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Baron Wealthbuilder

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Wealthbuilder Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Wealthbuilder may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Baron Wealthbuilder

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

The idea behind Microsoft and Baron Wealthbuilder Fund 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.