Correlation Between Pax Large and Pax Small

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

Diversification Opportunities for Pax Large and Pax Small

0.79

Correlation Coefficient

Pax Large  Pax Small

Poor diversification

The 3 months correlation between Pax and Pax is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Pax Large Cap and Pax Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Small Cap 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Small Cap has no effect on the direction of Pax Large i.e., Pax Large and Pax Small go up and down completely randomly.

Pair Corralation between Pax Large and Pax Small

Assuming the 90 days horizon Pax Large is expected to generate 1.69 times less return on investment than Pax Small. But when comparing it to its historical volatility, Pax Large Cap is 1.09 times less risky than Pax Small. It trades about 0.05 of its potential returns per unit of risk. Pax Small Cap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,747  in Pax Small Cap on October 22, 2024 and sell it today you would earn a total of  21.00  from holding Pax Small Cap or generate 1.2% return on investment over 90 days.

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

Pax Large Cap  vs.  Pax Small Cap

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 Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Pax Large Cap and Pax Small 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.