Correlation Between Pax Small and Pax Msci

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

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

Diversification Opportunities for Pax Small and Pax Msci

-0.69

Correlation Coefficient

Pax Small  Pax Msci

Excellent diversification

The 3 months correlation between Pax and Pax is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Pax Small Cap and Pax Msci Eafe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Msci Eafe and Pax Small 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 Small Cap are associated (or correlated) with Pax Msci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Msci Eafe has no effect on the direction of Pax Small i.e., Pax Small and Pax Msci go up and down completely randomly.

Pair Corralation between Pax Small and Pax Msci

Assuming the 90 days horizon Pax Small Cap is expected to generate 1.66 times more return on investment than Pax Msci. However, Pax Small is 1.66 times more volatile than Pax Msci Eafe. It trades about 0.3 of its potential returns per unit of risk. Pax Msci Eafe is currently generating about 0.02 per unit of risk. If you would invest  1,776  in Pax Small Cap on September 5, 2024 and sell it today you would earn a total of  163.00  from holding Pax Small Cap or generate 9.18% return on investment over 90 days.

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

Pax Small Cap  vs.  Pax Msci Eafe

Pax Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pax Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pax Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pax Msci Eafe

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pax Small and Pax Msci

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

The idea behind Pax Small Cap and Pax Msci Eafe 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.