Correlation Between IShares Core and Pacer Emerging

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

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

Diversification Opportunities for IShares Core and Pacer Emerging

0.93

Correlation Coefficient

IShares Core  Pacer Emerging

Almost no diversification

The 3 months correlation between IShares and Pacer is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Pacer Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Emerging Markets and IShares Core 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 iShares Core MSCI are associated (or correlated) with Pacer Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Emerging Markets has no effect on the direction of IShares Core i.e., IShares Core and Pacer Emerging go up and down completely randomly.

Pair Corralation between IShares Core and Pacer Emerging

Given the investment horizon of 90 days iShares Core MSCI is expected to generate 1.21 times more return on investment than Pacer Emerging. However, IShares Core is 1.21 times more volatile than Pacer Emerging Markets. It trades about 0.08 of its potential returns per unit of risk. Pacer Emerging Markets is currently generating about -0.01 per unit of risk. If you would invest  5,267  in iShares Core MSCI on December 4, 2024 and sell it today you would earn a total of  73.00  from holding iShares Core MSCI or generate 1.39% return on investment over 90 days.

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

iShares Core MSCI  vs.  Pacer Emerging Markets

iShares Core MSCI

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pacer Emerging Markets

Risk-Adjusted Performance

Very Weak

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

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

The idea behind iShares Core MSCI and Pacer Emerging 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.