Correlation Between Pax Balanced and Pax Core

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

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

Diversification Opportunities for Pax Balanced and Pax Core

0.56

Correlation Coefficient

Pax Balanced  Pax Core

Very weak diversification

The 3 months correlation between Pax and Pax is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Pax Balanced Fund and Pax E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax E Bond and Pax Balanced 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 Pax Balanced Fund are associated (or correlated) with Pax Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax E Bond has no effect on the direction of Pax Balanced i.e., Pax Balanced and Pax Core go up and down completely randomly.

Pair Corralation between Pax Balanced and Pax Core

Assuming the 90 days horizon Pax Balanced Fund is expected to under-perform the Pax Core. In addition to that, Pax Balanced is 1.99 times more volatile than Pax E Bond. It trades about -0.13 of its total potential returns per unit of risk. Pax E Bond is currently generating about 0.04 per unit of volatility. If you would invest  881.00  in Pax E Bond on December 4, 2024 and sell it today you would earn a total of  6.00  from holding Pax E Bond or generate 0.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Pax Balanced Fund  vs.  Pax E Bond

Pax Balanced

Risk-Adjusted Performance

Very Weak

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

Pax E Bond

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pax E Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Pax Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pax Balanced and Pax Core

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

The idea behind Pax Balanced Fund and Pax E Bond 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.