Correlation Between Pacer Small and Invesco SP

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

Diversification Opportunities for Pacer Small and Invesco SP

0.74

Correlation Coefficient

Pacer Small  Invesco SP

Poor diversification

The 3 months correlation between Pacer and Invesco is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Pacer Small Cap and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of Pacer Small i.e., Pacer Small and Invesco SP go up and down completely randomly.

Pair Corralation between Pacer Small and Invesco SP

Given the investment horizon of 90 days Pacer Small Cap is expected to under-perform the Invesco SP. But the etf apears to be less risky and, when comparing its historical volatility, Pacer Small Cap is 1.07 times less risky than Invesco SP. The etf trades about -0.01 of its potential returns per unit of risk. The Invesco SP SmallCap is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,106  in Invesco SP SmallCap on October 22, 2024 and sell it today you would earn a total of  1,170  from holding Invesco SP SmallCap or generate 11.58% return on investment over 90 days.

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

Pacer Small Cap  vs.  Invesco SP SmallCap

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco SP SmallCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Pacer Small and Invesco SP

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

The idea behind Pacer Small Cap and Invesco SP SmallCap 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..