Correlation Between Pax Small and Cref Inflation-linked

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

Diversification Opportunities for Pax Small and Cref Inflation-linked

-0.16

Correlation Coefficient

Pax Small  Cref Inflation-linked

Good diversification

The 3 months correlation between Pax and Cref is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Pax Small Cap and Cref Inflation Linked Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cref Inflation Linked 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 Cref Inflation-linked. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cref Inflation Linked has no effect on the direction of Pax Small i.e., Pax Small and Cref Inflation-linked go up and down completely randomly.

Pair Corralation between Pax Small and Cref Inflation-linked

Assuming the 90 days horizon Pax Small Cap is expected to under-perform the Cref Inflation-linked. In addition to that, Pax Small is 6.37 times more volatile than Cref Inflation Linked Bond. It trades about -0.17 of its total potential returns per unit of risk. Cref Inflation Linked Bond is currently generating about 0.25 per unit of volatility. If you would invest  8,453  in Cref Inflation Linked Bond on December 19, 2024 and sell it today you would earn a total of  230.00  from holding Cref Inflation Linked Bond or generate 2.72% return on investment over 90 days.

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

Pax Small Cap  vs.  Cref Inflation Linked Bond

Pax Small Cap

Risk-Adjusted Performance

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 weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Cref Inflation Linked

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cref Inflation Linked Bond are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Cref Inflation-linked 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 Cref Inflation-linked

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

The idea behind Pax Small Cap and Cref Inflation Linked 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.