Correlation Between Pax Esg and Green Century

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

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

Diversification Opportunities for Pax Esg and Green Century

0.83

Correlation Coefficient

Pax Esg  Green Century

Very poor diversification

The 3 months correlation between Pax and Green is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Pax Esg Beta and Green Century Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Green Century Equity and Pax Esg 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 Esg Beta are associated (or correlated) with Green Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Green Century Equity has no effect on the direction of Pax Esg i.e., Pax Esg and Green Century go up and down completely randomly.

Pair Corralation between Pax Esg and Green Century

Assuming the 90 days horizon Pax Esg is expected to generate 1.26 times less return on investment than Green Century. But when comparing it to its historical volatility, Pax Esg Beta is 1.11 times less risky than Green Century. It trades about 0.18 of its potential returns per unit of risk. Green Century Equity is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  8,560  in Green Century Equity on September 4, 2024 and sell it today you would earn a total of  893.00  from holding Green Century Equity or generate 10.43% return on investment over 90 days.

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

Pax Esg Beta  vs.  Green Century Equity

Pax Esg Beta

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pax Esg Beta are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Pax Esg may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Green Century Equity

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Green Century Equity are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Green Century may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pax Esg and Green Century

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

The idea behind Pax Esg Beta and Green Century Equity 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.