Correlation Between IShares Russell and Pacer Lunt

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

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

Diversification Opportunities for IShares Russell and Pacer Lunt

0.99

Correlation Coefficient

IShares Russell  Pacer Lunt

No risk reduction

The 3 months correlation between IShares and Pacer is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell Mid Cap and Pacer Lunt MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt MidCap and IShares Russell 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 Russell Mid Cap are associated (or correlated) with Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt MidCap has no effect on the direction of IShares Russell i.e., IShares Russell and Pacer Lunt go up and down completely randomly.

Pair Corralation between IShares Russell and Pacer Lunt

Considering the 90-day investment horizon IShares Russell is expected to generate 1.37 times less return on investment than Pacer Lunt. But when comparing it to its historical volatility, iShares Russell Mid Cap is 1.17 times less risky than Pacer Lunt. It trades about 0.07 of its potential returns per unit of risk. Pacer Lunt MidCap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,091  in Pacer Lunt MidCap on October 9, 2024 and sell it today you would earn a total of  1,664  from holding Pacer Lunt MidCap or generate 53.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

iShares Russell Mid Cap  vs.  Pacer Lunt MidCap

iShares Russell Mid

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Mid Cap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, IShares Russell is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pacer Lunt MidCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Lunt MidCap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Pacer Lunt is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Russell and Pacer Lunt

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

The idea behind iShares Russell Mid Cap and Pacer Lunt MidCap 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.