Correlation Between NYSE Composite and Pacer Emerging

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

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

Diversification Opportunities for NYSE Composite and Pacer Emerging

0.44

Correlation Coefficient

NYSE Composite  Pacer Emerging

Very weak diversification

The 3 months correlation between NYSE and Pacer is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Pacer Emerging go up and down completely randomly.

Pair Corralation between NYSE Composite and Pacer Emerging

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.5 times less return on investment than Pacer Emerging. But when comparing it to its historical volatility, NYSE Composite is 1.06 times less risky than Pacer Emerging. It trades about 0.05 of its potential returns per unit of risk. Pacer Emerging Markets is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,948  in Pacer Emerging Markets on December 28, 2024 and sell it today you would earn a total of  124.00  from holding Pacer Emerging Markets or generate 6.37% return on investment over 90 days.

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

NYSE Composite  vs.  Pacer Emerging Markets

Pair Trading with NYSE Composite and Pacer Emerging

The main advantage of trading using opposite NYSE Composite and Pacer Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.