Correlation Between Praxis Small and Biotechnology Ultrasector

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

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

Diversification Opportunities for Praxis Small and Biotechnology Ultrasector

0.1

Correlation Coefficient

Praxis Small  Biotechnology Ultrasector

Average diversification

The 3 months correlation between Praxis and Biotechnology is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Praxis Small Cap and Biotechnology Ultrasector Prof in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Ultrasector and Praxis Small 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 Praxis Small Cap are associated (or correlated) with Biotechnology Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Ultrasector has no effect on the direction of Praxis Small i.e., Praxis Small and Biotechnology Ultrasector go up and down completely randomly.

Pair Corralation between Praxis Small and Biotechnology Ultrasector

Assuming the 90 days horizon Praxis Small is expected to generate 1.11 times less return on investment than Biotechnology Ultrasector. But when comparing it to its historical volatility, Praxis Small Cap is 2.1 times less risky than Biotechnology Ultrasector. It trades about 0.07 of its potential returns per unit of risk. Biotechnology Ultrasector Profund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,952  in Biotechnology Ultrasector Profund on September 23, 2024 and sell it today you would earn a total of  883.00  from holding Biotechnology Ultrasector Profund or generate 17.83% return on investment over 90 days.

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

Praxis Small Cap  vs.  Biotechnology Ultrasector Prof

Praxis Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Biotechnology Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biotechnology Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Praxis Small and Biotechnology Ultrasector

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

The idea behind Praxis Small Cap and Biotechnology Ultrasector Profund 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.