Correlation Between Praxis Small and Praxis Value

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

Diversification Opportunities for Praxis Small and Praxis Value

0.54

Correlation Coefficient

Praxis Small  Praxis Value

Very weak diversification

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

Pair Corralation between Praxis Small and Praxis Value

Assuming the 90 days horizon Praxis Small Cap is expected to under-perform the Praxis Value. In addition to that, Praxis Small is 1.48 times more volatile than Praxis Value Index. It trades about -0.11 of its total potential returns per unit of risk. Praxis Value Index is currently generating about 0.02 per unit of volatility. If you would invest  1,752  in Praxis Value Index on December 28, 2024 and sell it today you would earn a total of  16.00  from holding Praxis Value Index or generate 0.91% return on investment over 90 days.

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

Praxis Small Cap  vs.  Praxis Value Index

Praxis Small Cap

Risk-Adjusted Performance

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 latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Praxis Value Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Praxis Value Index are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Praxis Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Praxis Small and Praxis Value

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

The idea behind Praxis Small Cap and Praxis Value Index 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.