Correlation Between Global Technology and Pace Small/medium

Can any of the company-specific risk be diversified away by investing in both Global Technology and Pace Small/medium 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 Global Technology and Pace Small/medium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Global Technology Portfolio and Pace Smallmedium Growth, you can compare the effects of market volatilities on Global Technology and Pace Small/medium 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 Global Technology with a short position of Pace Small/medium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Technology and Pace Small/medium.

Diversification Opportunities for Global Technology and Pace Small/medium

0.84

Correlation Coefficient

Global Technology  Pace Small/medium

Very poor diversification

The 3 months correlation between Global and Pace is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Global Technology Portfolio and Pace Smallmedium Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Smallmedium Growth and Global Technology 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 Global Technology Portfolio are associated (or correlated) with Pace Small/medium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Smallmedium Growth has no effect on the direction of Global Technology i.e., Global Technology and Pace Small/medium go up and down completely randomly.

Pair Corralation between Global Technology and Pace Small/medium

Assuming the 90 days horizon Global Technology is expected to generate 1.36 times less return on investment than Pace Small/medium. In addition to that, Global Technology is 1.01 times more volatile than Pace Smallmedium Growth. It trades about 0.16 of its total potential returns per unit of risk. Pace Smallmedium Growth is currently generating about 0.22 per unit of volatility. If you would invest  1,217  in Pace Smallmedium Growth on September 4, 2024 and sell it today you would earn a total of  206.00  from holding Pace Smallmedium Growth or generate 16.93% return on investment over 90 days.

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

Global Technology Portfolio  vs.  Pace Smallmedium Growth

Global Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Technology Portfolio are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pace Smallmedium Growth

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Smallmedium Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pace Small/medium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Technology and Pace Small/medium

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

The idea behind Global Technology Portfolio and Pace Smallmedium Growth 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.