Correlation Between Pacer Emerging and Pacer Developed

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

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

Diversification Opportunities for Pacer Emerging and Pacer Developed

0.5

Correlation Coefficient

Pacer Emerging  Pacer Developed

Very weak diversification

The 3 months correlation between Pacer and Pacer is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Pacer Emerging Markets and Pacer Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Developed Markets and Pacer Emerging 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 Emerging Markets are associated (or correlated) with Pacer Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Developed Markets has no effect on the direction of Pacer Emerging i.e., Pacer Emerging and Pacer Developed go up and down completely randomly.

Pair Corralation between Pacer Emerging and Pacer Developed

Given the investment horizon of 90 days Pacer Emerging Markets is expected to generate 1.64 times more return on investment than Pacer Developed. However, Pacer Emerging is 1.64 times more volatile than Pacer Developed Markets. It trades about 0.01 of its potential returns per unit of risk. Pacer Developed Markets is currently generating about -0.09 per unit of risk. If you would invest  2,022  in Pacer Emerging Markets on August 30, 2024 and sell it today you would earn a total of  13.00  from holding Pacer Emerging Markets or generate 0.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Pacer Emerging Markets  vs.  Pacer Developed Markets

Pacer Emerging Markets

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Emerging Markets are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Pacer Emerging is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pacer Developed Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacer Developed Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pacer Developed 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 Emerging and Pacer Developed

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

The idea behind Pacer Emerging Markets and Pacer Developed Markets 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.