Correlation Between Pax Core and Pax Large

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

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

Diversification Opportunities for Pax Core and Pax Large

0.75

Correlation Coefficient

Pax Core  Pax Large

Poor diversification

The 3 months correlation between Pax and Pax is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Pax E Bond and Pax Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Large Cap and Pax Core 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 E Bond are associated (or correlated) with Pax Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Large Cap has no effect on the direction of Pax Core i.e., Pax Core and Pax Large go up and down completely randomly.

Pair Corralation between Pax Core and Pax Large

Assuming the 90 days horizon Pax E Bond is expected to under-perform the Pax Large. But the mutual fund apears to be less risky and, when comparing its historical volatility, Pax E Bond is 2.52 times less risky than Pax Large. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Pax Large Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,286  in Pax Large Cap on October 21, 2024 and sell it today you would earn a total of  16.00  from holding Pax Large Cap or generate 1.24% return on investment over 90 days.

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

Pax E Bond  vs.  Pax Large Cap

Pax E Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pax E Bond has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pax Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pax Large Cap 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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Pax Core and Pax Large

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

The idea behind Pax E Bond and Pax Large 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.