Correlation Between Pacer Small and WisdomTree SmallCap

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

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

Diversification Opportunities for Pacer Small and WisdomTree SmallCap

0.89

Correlation Coefficient

Pacer Small  WisdomTree SmallCap

Very poor diversification

The 3 months correlation between Pacer and WisdomTree is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Pacer Small Cap and WisdomTree SmallCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and Pacer 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 Pacer Small Cap are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of Pacer Small i.e., Pacer Small and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Pacer Small and WisdomTree SmallCap

Given the investment horizon of 90 days Pacer Small Cap is expected to under-perform the WisdomTree SmallCap. In addition to that, Pacer Small is 1.19 times more volatile than WisdomTree SmallCap Dividend. It trades about -0.22 of its total potential returns per unit of risk. WisdomTree SmallCap Dividend is currently generating about -0.1 per unit of volatility. If you would invest  3,400  in WisdomTree SmallCap Dividend on December 29, 2024 and sell it today you would lose (208.00) from holding WisdomTree SmallCap Dividend or give up 6.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Pacer Small Cap  vs.  WisdomTree SmallCap Dividend

Pacer Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacer Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's essential indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

WisdomTree SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree SmallCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Pacer Small and WisdomTree SmallCap

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

The idea behind Pacer Small Cap and WisdomTree SmallCap Dividend 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.