Correlation Between Pax E and Pax Small
Can any of the company-specific risk be diversified away by investing in both Pax E 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 E 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 E Bond and Pax Small Cap, you can compare the effects of market volatilities on Pax E 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 E with a short position of Pax Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pax E and Pax Small.
Diversification Opportunities for Pax E and Pax Small
Very poor diversification
The 3 months correlation between Pax and Pax is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Pax E Bond 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 E 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 E Bond 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 E i.e., Pax E and Pax Small go up and down completely randomly.
Pair Corralation between Pax E and Pax Small
Assuming the 90 days horizon Pax E is expected to generate 3.09 times less return on investment than Pax Small. But when comparing it to its historical volatility, Pax E Bond is 2.82 times less risky than Pax Small. It trades about 0.03 of its potential returns per unit of risk. Pax Small Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,548 in Pax Small Cap on November 2, 2024 and sell it today you would earn a total of 263.00 from holding Pax Small Cap or generate 16.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pax E Bond vs. Pax Small Cap
Performance |
| Timeline |
| Pax E Bond |
| Pax Small Cap |
Pax E and Pax Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pax E and Pax Small
The main advantage of trading using opposite Pax E and Pax Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pax E 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 E Bond 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.| Pax Small vs. Pax Global Environmental | Pax Small vs. Pax Esg Beta | Pax Small vs. Pax Msci Eafe | Pax Small vs. Pax High Yield |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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