Correlation Between Sp Midcap and Pax Small

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

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

Diversification Opportunities for Sp Midcap and Pax Small

0.5

Correlation Coefficient

Sp Midcap  Pax Small

Very weak diversification

The 3 months correlation between SPMIX and Pax is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Sp Midcap Index 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 Sp Midcap 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 Sp Midcap Index 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 Sp Midcap i.e., Sp Midcap and Pax Small go up and down completely randomly.

Pair Corralation between Sp Midcap and Pax Small

Assuming the 90 days horizon Sp Midcap is expected to generate 15.03 times less return on investment than Pax Small. In addition to that, Sp Midcap is 1.38 times more volatile than Pax Small Cap. It trades about 0.01 of its total potential returns per unit of risk. Pax Small Cap is currently generating about 0.17 per unit of volatility. If you would invest  1,777  in Pax Small Cap on September 13, 2024 and sell it today you would earn a total of  200.00  from holding Pax Small Cap or generate 11.25% return on investment over 90 days.

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

Sp Midcap Index  vs.  Pax Small Cap

Sp Midcap Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pax Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pax Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Pax Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sp Midcap and Pax Small

The main advantage of trading using opposite Sp Midcap and Pax Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp Midcap 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 Sp Midcap Index 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 Transaction History module to view history of all your transactions and understand their impact on performance.