Correlation Between Pace Large and World Energy

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

By analyzing existing cross correlation between Pace Large Value and World Energy Fund, you can compare the effects of market volatilities on Pace Large and World Energy 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 Pace Large with a short position of World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace Large and World Energy.

Diversification Opportunities for Pace Large and World Energy

0.94

Correlation Coefficient

Pace Large  World Energy

Almost no diversification

The 3 months correlation between Pace and World is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Value and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy and Pace Large 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 Pace Large Value are associated (or correlated) with World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Pace Large i.e., Pace Large and World Energy go up and down completely randomly.

Pair Corralation between Pace Large and World Energy

Assuming the 90 days horizon Pace Large Value is expected to generate 0.38 times more return on investment than World Energy. However, Pace Large Value is 2.61 times less risky than World Energy. It trades about -0.02 of its potential returns per unit of risk. World Energy Fund is currently generating about -0.07 per unit of risk. If you would invest  2,289  in Pace Large Value on September 17, 2024 and sell it today you would lose (4.00) from holding Pace Large Value or give up 0.17% of portfolio value over 90 days.

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

Pace Large Value  vs.  World Energy Fund

Pace Large Value

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Value are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pace Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

World Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pace Large and World Energy

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

The idea behind Pace Large Value and World Energy Fund 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.