Correlation Between Pacer Small and Vanguard

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

Diversification Opportunities for Pacer Small and Vanguard

0.96

Correlation Coefficient

Pacer Small  Vanguard

Almost no diversification

The 3 months correlation between Pacer and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Pacer Small Cap and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of Pacer Small i.e., Pacer Small and Vanguard go up and down completely randomly.

Pair Corralation between Pacer Small and Vanguard

Given the investment horizon of 90 days Pacer Small Cap is expected to under-perform the Vanguard. In addition to that, Pacer Small is 1.03 times more volatile than Vanguard SP Small Cap. It trades about -0.22 of its total potential returns per unit of risk. Vanguard SP Small Cap is currently generating about -0.14 per unit of volatility. If you would invest  9,262  in Vanguard SP Small Cap on December 29, 2024 and sell it today you would lose (903.00) from holding Vanguard SP Small Cap or give up 9.75% of portfolio value over 90 days.

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

Pacer Small Cap  vs.  Vanguard SP Small Cap

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.

Vanguard SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Pacer Small and Vanguard

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

The idea behind Pacer Small Cap and Vanguard SP Small Cap 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.