Correlation Between Boston Partners and Pax Small

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

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

Diversification Opportunities for Boston Partners and Pax Small

0.89

Correlation Coefficient

Boston Partners  Pax Small

Very poor diversification

The 3 months correlation between Boston and Pax is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Boston Partners Longshort 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 Boston Partners 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 Boston Partners Longshort 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 Boston Partners i.e., Boston Partners and Pax Small go up and down completely randomly.

Pair Corralation between Boston Partners and Pax Small

Assuming the 90 days horizon Boston Partners is expected to generate 3.34 times less return on investment than Pax Small. But when comparing it to its historical volatility, Boston Partners Longshort is 2.45 times less risky than Pax Small. It trades about 0.12 of its potential returns per unit of risk. Pax Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,737  in Pax Small Cap on September 13, 2024 and sell it today you would earn a total of  182.00  from holding Pax Small Cap or generate 10.48% return on investment over 90 days.

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

Boston Partners Longshort  vs.  Pax Small Cap

Boston Partners Longshort

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Partners Longshort are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Boston Partners 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

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pax Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pax Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Boston Partners and Pax Small

The main advantage of trading using opposite Boston Partners and Pax Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boston Partners 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 Boston Partners Longshort 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.