Correlation Between MicroSectors FANG and Pacer Benchmark

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

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

Diversification Opportunities for MicroSectors FANG and Pacer Benchmark

-0.66

Correlation Coefficient

MicroSectors FANG  Pacer Benchmark

Excellent diversification

The 3 months correlation between MicroSectors and Pacer is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Pacer Benchmark Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Benchmark Indu and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Pacer Benchmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Benchmark Indu has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Pacer Benchmark go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Pacer Benchmark

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 4.26 times more return on investment than Pacer Benchmark. However, MicroSectors FANG is 4.26 times more volatile than Pacer Benchmark Industrial. It trades about 0.11 of its potential returns per unit of risk. Pacer Benchmark Industrial is currently generating about -0.02 per unit of risk. If you would invest  23,538  in MicroSectors FANG Index on September 12, 2024 and sell it today you would earn a total of  39,228  from holding MicroSectors FANG Index or generate 166.66% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  Pacer Benchmark Industrial

MicroSectors FANG Index

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pacer Benchmark Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacer Benchmark Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with MicroSectors FANG and Pacer Benchmark

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

The idea behind MicroSectors FANG Index and Pacer Benchmark Industrial 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.