Correlation Between PAX Global and Legible

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

By analyzing existing cross correlation between PAX Global Technology and Legible, you can compare the effects of market volatilities on PAX Global and Legible 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 Global with a short position of Legible. Check out your portfolio center. Please also check ongoing floating volatility patterns of PAX Global and Legible.

Diversification Opportunities for PAX Global and Legible

0.57

Correlation Coefficient

PAX Global  Legible

Very weak diversification

The 3 months correlation between PAX and Legible is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding PAX Global Technology and Legible in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legible and PAX Global 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 Global Technology are associated (or correlated) with Legible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legible has no effect on the direction of PAX Global i.e., PAX Global and Legible go up and down completely randomly.

Pair Corralation between PAX Global and Legible

Assuming the 90 days horizon PAX Global is expected to generate 2.22 times less return on investment than Legible. But when comparing it to its historical volatility, PAX Global Technology is 1.75 times less risky than Legible. It trades about 0.09 of its potential returns per unit of risk. Legible is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Legible on September 4, 2024 and sell it today you would earn a total of  1.12  from holding Legible or generate 37.33% return on investment over 90 days.

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

PAX Global Technology  vs.  Legible

PAX Global Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PAX Global Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, PAX Global reported solid returns over the last few months and may actually be approaching a breakup point.

Legible

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legible are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Legible reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PAX Global and Legible

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

The idea behind PAX Global Technology and Legible 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.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.