Correlation Between Nasdaq 100 and Baron Partners

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Baron Partners 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 Nasdaq 100 and Baron Partners into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Baron Partners, you can compare the effects of market volatilities on Nasdaq 100 and Baron Partners 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 Nasdaq 100 with a short position of Baron Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Baron Partners.

Diversification Opportunities for Nasdaq 100 and Baron Partners

0.82

Correlation Coefficient

Nasdaq 100  Baron Partners

Very poor diversification

The 3 months correlation between Nasdaq and Baron is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Baron Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Partners and Nasdaq 100 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 Nasdaq 100 2x Strategy are associated (or correlated) with Baron Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Partners has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Baron Partners go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Baron Partners

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.27 times more return on investment than Baron Partners. However, Nasdaq 100 is 1.27 times more volatile than Baron Partners. It trades about 0.07 of its potential returns per unit of risk. Baron Partners is currently generating about 0.08 per unit of risk. If you would invest  29,641  in Nasdaq 100 2x Strategy on September 14, 2024 and sell it today you would earn a total of  11,584  from holding Nasdaq 100 2x Strategy or generate 39.08% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Baron Partners

Nasdaq 100 2x

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Nasdaq 100 showed solid returns over the last few months and may actually be approaching a breakup point.

Baron Partners

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Partners are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Partners showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq 100 and Baron Partners

The main advantage of trading using opposite Nasdaq 100 and Baron Partners positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 position performs unexpectedly, Baron Partners 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 Partners will offset losses from the drop in Baron Partners' long position.

The idea behind Nasdaq 100 2x Strategy and Baron Partners 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.