Correlation Between Pax Small and Pax E

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

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

Diversification Opportunities for Pax Small and Pax E

0.67

Correlation Coefficient

Pax Small  Pax E

Poor diversification

The 3 months correlation between Pax and Pax is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Pax Small Cap 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 Small 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 Small Cap are associated (or correlated) with Pax E. 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 Small i.e., Pax Small and Pax E go up and down completely randomly.

Pair Corralation between Pax Small and Pax E

Assuming the 90 days horizon Pax Small Cap is expected to under-perform the Pax E. In addition to that, Pax Small is 3.62 times more volatile than Pax E Bond. It trades about -0.14 of its total potential returns per unit of risk. Pax E Bond is currently generating about -0.03 per unit of volatility. If you would invest  869.00  in Pax E Bond on October 22, 2024 and sell it today you would lose (3.00) from holding Pax E Bond or give up 0.35% of portfolio value over 90 days.

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

Pax Small Cap  vs.  Pax E Bond

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.

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 E 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 Small and Pax E

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

The idea behind Pax Small Cap 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..