Correlation Between Sarofim Equity and Pax Large

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

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

Diversification Opportunities for Sarofim Equity and Pax Large

0.89

Correlation Coefficient

Sarofim Equity  Pax Large

Very poor diversification

The 3 months correlation between Sarofim and Pax is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Sarofim Equity and Pax Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Large Cap and Sarofim Equity 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 Sarofim Equity are associated (or correlated) with Pax Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Large Cap has no effect on the direction of Sarofim Equity i.e., Sarofim Equity and Pax Large go up and down completely randomly.

Pair Corralation between Sarofim Equity and Pax Large

Assuming the 90 days horizon Sarofim Equity is expected to generate 1.03 times more return on investment than Pax Large. However, Sarofim Equity is 1.03 times more volatile than Pax Large Cap. It trades about -0.12 of its potential returns per unit of risk. Pax Large Cap is currently generating about -0.13 per unit of risk. If you would invest  1,672  in Sarofim Equity on October 10, 2024 and sell it today you would lose (255.00) from holding Sarofim Equity or give up 15.25% of portfolio value over 90 days.

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

Sarofim Equity  vs.  Pax Large Cap

Sarofim Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sarofim Equity 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 primary 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 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 essential 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.

Pair Trading with Sarofim Equity and Pax Large

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

The idea behind Sarofim Equity and Pax Large 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.