Correlation Between Algorand and Pax Small

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

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

Diversification Opportunities for Algorand and Pax Small

0.54

Correlation Coefficient

Algorand  Pax Small

Very weak diversification

The 3 months correlation between Algorand and Pax is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Algorand and Pax Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Small Cap and Algorand 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 Algorand are associated (or correlated) with Pax Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Small Cap has no effect on the direction of Algorand i.e., Algorand and Pax Small go up and down completely randomly.

Pair Corralation between Algorand and Pax Small

Assuming the 90 days trading horizon Algorand is expected to under-perform the Pax Small. In addition to that, Algorand is 5.87 times more volatile than Pax Small Cap. It trades about -0.15 of its total potential returns per unit of risk. Pax Small Cap is currently generating about -0.11 per unit of volatility. If you would invest  1,747  in Pax Small Cap on December 21, 2024 and sell it today you would lose (126.00) from holding Pax Small Cap or give up 7.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.75%
Values	Daily Returns

Algorand  vs.  Pax Small Cap

Algorand

Risk-Adjusted Performance

Very Weak

Over the last 90 days Algorand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Algorand shareholders.

Pax Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pax Small Cap 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 Algorand and Pax Small

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

The idea behind Algorand and Pax Small Cap 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.