Correlation Between Praxis Small and Vanguard Emerging

Can any of the company-specific risk be diversified away by investing in both Praxis Small and Vanguard Emerging 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 Vanguard Emerging 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 Vanguard Emerging Markets, you can compare the effects of market volatilities on Praxis Small and Vanguard Emerging 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 Vanguard Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Praxis Small and Vanguard Emerging.

Diversification Opportunities for Praxis Small and Vanguard Emerging

-0.31

Correlation Coefficient

Praxis Small  Vanguard Emerging

Very good diversification

The 3 months correlation between Praxis and Vanguard is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Praxis Small Cap and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets 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 Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of Praxis Small i.e., Praxis Small and Vanguard Emerging go up and down completely randomly.

Pair Corralation between Praxis Small and Vanguard Emerging

Assuming the 90 days horizon Praxis Small Cap is expected to under-perform the Vanguard Emerging. In addition to that, Praxis Small is 1.25 times more volatile than Vanguard Emerging Markets. It trades about -0.37 of its total potential returns per unit of risk. Vanguard Emerging Markets is currently generating about -0.34 per unit of volatility. If you would invest  2,257  in Vanguard Emerging Markets on October 4, 2024 and sell it today you would lose (139.00) from holding Vanguard Emerging Markets or give up 6.16% of portfolio value over 90 days.

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

Praxis Small Cap  vs.  Vanguard Emerging Markets

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.

Vanguard Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Emerging Markets 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 basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Praxis Small and Vanguard Emerging

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

The idea behind Praxis Small Cap and Vanguard Emerging Markets 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.