Correlation Between Pax Large and Pax Msci

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

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

Diversification Opportunities for Pax Large and Pax Msci

0.77

Correlation Coefficient

Pax Large  Pax Msci

Poor diversification

The 3 months correlation between Pax and Pax is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Pax Large Cap and Pax Msci Eafe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Msci Eafe and Pax Large 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 Large Cap are associated (or correlated) with Pax Msci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Msci Eafe has no effect on the direction of Pax Large i.e., Pax Large and Pax Msci go up and down completely randomly.

Pair Corralation between Pax Large and Pax Msci

Assuming the 90 days horizon Pax Large Cap is expected to under-perform the Pax Msci. In addition to that, Pax Large is 3.23 times more volatile than Pax Msci Eafe. It trades about -0.16 of its total potential returns per unit of risk. Pax Msci Eafe is currently generating about -0.02 per unit of volatility. If you would invest  1,065  in Pax Msci Eafe on October 22, 2024 and sell it today you would lose (8.00) from holding Pax Msci Eafe or give up 0.75% of portfolio value over 90 days.

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

Pax Large Cap  vs.  Pax Msci Eafe

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.

Pax Msci Eafe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pax Msci Eafe has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pax Msci 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 Large and Pax Msci

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

The idea behind Pax Large Cap and Pax Msci Eafe 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.