Correlation Between IShares Morningstar and Pacer Large

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

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

Diversification Opportunities for IShares Morningstar and Pacer Large

0.7

Correlation Coefficient

IShares Morningstar  Pacer Large

Poor diversification

The 3 months correlation between IShares and Pacer is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares Morningstar Mid Cap and Pacer Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Large Cap and IShares Morningstar 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 Morningstar Mid Cap are associated (or correlated) with Pacer Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Large Cap has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and Pacer Large go up and down completely randomly.

Pair Corralation between IShares Morningstar and Pacer Large

Considering the 90-day investment horizon iShares Morningstar Mid Cap is expected to under-perform the Pacer Large. But the etf apears to be less risky and, when comparing its historical volatility, iShares Morningstar Mid Cap is 1.3 times less risky than Pacer Large. The etf trades about -0.08 of its potential returns per unit of risk. The Pacer Large Cap is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,392  in Pacer Large Cap on December 3, 2024 and sell it today you would lose (146.00) from holding Pacer Large Cap or give up 4.3% of portfolio value over 90 days.

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

iShares Morningstar Mid Cap  vs.  Pacer Large Cap

iShares Morningstar Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Morningstar Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, IShares Morningstar is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pacer Large Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares Morningstar and Pacer Large

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

The idea behind iShares Morningstar Mid Cap and Pacer Large Cap 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.