Correlation Between SPDR SP and Pacer Lunt

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

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

Diversification Opportunities for SPDR SP and Pacer Lunt

0.98

Correlation Coefficient

SPDR SP  Pacer Lunt

Almost no diversification

The 3 months correlation between SPDR and Pacer is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP MIDCAP 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 SPDR SP 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 SPDR SP MIDCAP 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 SPDR SP i.e., SPDR SP and Pacer Lunt go up and down completely randomly.

Pair Corralation between SPDR SP and Pacer Lunt

Considering the 90-day investment horizon SPDR SP MIDCAP is expected to generate 0.93 times more return on investment than Pacer Lunt. However, SPDR SP MIDCAP is 1.07 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 -0.13 per unit of risk. If you would invest  56,614  in SPDR SP MIDCAP on December 19, 2024 and sell it today you would lose (2,691) from holding SPDR SP MIDCAP or give up 4.75% of portfolio value over 90 days.

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

SPDR SP MIDCAP  vs.  Pacer Lunt MidCap

SPDR SP MIDCAP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP MIDCAP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pacer Lunt MidCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacer Lunt MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with SPDR SP and Pacer Lunt

The main advantage of trading using opposite SPDR SP and Pacer Lunt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP MIDCAP 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..