Correlation Between Pax High and Small Cap

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

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

Diversification Opportunities for Pax High and Small Cap

0.54

Correlation Coefficient

Pax High  Small Cap

Very weak diversification

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

Pair Corralation between Pax High and Small Cap

Assuming the 90 days horizon Pax High Yield is expected to generate 0.21 times more return on investment than Small Cap. However, Pax High Yield is 4.83 times less risky than Small Cap. It trades about 0.08 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about 0.01 per unit of risk. If you would invest  541.00  in Pax High Yield on September 27, 2024 and sell it today you would earn a total of  64.00  from holding Pax High Yield or generate 11.83% return on investment over 90 days.

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

Pax High Yield  vs.  Small Cap Value Fund

Pax High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

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

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Pax High and Small Cap

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

The idea behind Pax High Yield and Small Cap Value Fund 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.