Correlation Between American Funds and Baron Wealthbuilder

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

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

Diversification Opportunities for American Funds and Baron Wealthbuilder

0.67

Correlation Coefficient

American Funds  Baron Wealthbuilder

Poor diversification

The 3 months correlation between American and Baron is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Growth and Baron Wealthbuilder Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Wealthbuilder 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 Growth 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 American Funds i.e., American Funds and Baron Wealthbuilder go up and down completely randomly.

Pair Corralation between American Funds and Baron Wealthbuilder

Assuming the 90 days horizon American Funds Growth is expected to generate 0.84 times more return on investment than Baron Wealthbuilder. However, American Funds Growth is 1.19 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 0.03 per unit of risk. If you would invest  1,806  in American Funds Growth on March 21, 2024 and sell it today you would earn a total of  620.00  from holding American Funds Growth or generate 34.33% return on investment over 90 days.

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

American Funds Growth  vs.  Baron Wealthbuilder Fund

American Funds Growth

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Growth are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Baron Wealthbuilder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baron Wealthbuilder Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Baron Wealthbuilder is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Funds and Baron Wealthbuilder

The main advantage of trading using opposite American Funds and Baron Wealthbuilder positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 American Funds Growth 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.

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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.