Correlation Between Heritage Fund and Pace Large

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

By analyzing existing cross correlation between Heritage Fund I and Pace Large Value, you can compare the effects of market volatilities on Heritage Fund and Pace Large 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 Heritage Fund with a short position of Pace Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heritage Fund and Pace Large.

Diversification Opportunities for Heritage Fund and Pace Large

0.88

Correlation Coefficient

Heritage Fund  Pace Large

Very poor diversification

The 3 months correlation between Heritage and Pace is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Fund I and Pace Large Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Large Value and Heritage Fund 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 Heritage Fund I are associated (or correlated) with Pace Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Large Value has no effect on the direction of Heritage Fund i.e., Heritage Fund and Pace Large go up and down completely randomly.

Pair Corralation between Heritage Fund and Pace Large

Assuming the 90 days horizon Heritage Fund I is expected to generate 1.6 times more return on investment than Pace Large. However, Heritage Fund is 1.6 times more volatile than Pace Large Value. It trades about -0.01 of its potential returns per unit of risk. Pace Large Value is currently generating about -0.06 per unit of risk. If you would invest  2,940  in Heritage Fund I on October 23, 2024 and sell it today you would lose (72.00) from holding Heritage Fund I or give up 2.45% of portfolio value over 90 days.

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

Heritage Fund I  vs.  Pace Large Value

Heritage Fund I

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pace Large Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Heritage Fund and Pace Large

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

The idea behind Heritage Fund I and Pace Large Value 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.