Correlation Between Pacer Small and ProShares

Can any of the company-specific risk be diversified away by investing in both Pacer Small and ProShares 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 ProShares 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 ProShares SP MidCap, you can compare the effects of market volatilities on Pacer Small and ProShares 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 ProShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacer Small and ProShares.

Diversification Opportunities for Pacer Small and ProShares

0.8

Correlation Coefficient

Pacer Small  ProShares

Very poor diversification

The 3 months correlation between Pacer and ProShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pacer Small Cap and ProShares SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares SP MidCap 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 ProShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares SP MidCap has no effect on the direction of Pacer Small i.e., Pacer Small and ProShares go up and down completely randomly.

Pair Corralation between Pacer Small and ProShares

Given the investment horizon of 90 days Pacer Small Cap is expected to generate 1.03 times more return on investment than ProShares. However, Pacer Small is 1.03 times more volatile than ProShares SP MidCap. It trades about -0.35 of its potential returns per unit of risk. ProShares SP MidCap is currently generating about -0.37 per unit of risk. If you would invest  4,792  in Pacer Small Cap on September 27, 2024 and sell it today you would lose (329.50) from holding Pacer Small Cap or give up 6.88% of portfolio value over 90 days.

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

Pacer Small Cap  vs.  ProShares SP MidCap

Pacer Small Cap

Risk-Adjusted Performance

0 of 100

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 nearly stable essential indicators, Pacer Small is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

ProShares SP MidCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares SP MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, ProShares is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Pacer Small and ProShares

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

The idea behind Pacer Small Cap and ProShares SP MidCap 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.