Correlation Between Pace Large and High-yield Fund

Can any of the company-specific risk be diversified away by investing in both Pace Large and High-yield Fund 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 High-yield Fund 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 High Yield Fund R5, you can compare the effects of market volatilities on Pace Large and High-yield Fund 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 High-yield Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace Large and High-yield Fund.

Diversification Opportunities for Pace Large and High-yield Fund

0.86

Correlation Coefficient

Pace Large  High-yield Fund

Very poor diversification

The 3 months correlation between Pace and High-yield is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Value and High Yield Fund R5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund 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 High-yield Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Pace Large i.e., Pace Large and High-yield Fund go up and down completely randomly.

Pair Corralation between Pace Large and High-yield Fund

Assuming the 90 days horizon Pace Large Value is expected to under-perform the High-yield Fund. In addition to that, Pace Large is 3.97 times more volatile than High Yield Fund R5. It trades about -0.19 of its total potential returns per unit of risk. High Yield Fund R5 is currently generating about -0.26 per unit of volatility. If you would invest  515.00  in High Yield Fund R5 on October 9, 2024 and sell it today you would lose (5.00) from holding High Yield Fund R5 or give up 0.97% of portfolio value over 90 days.

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

Pace Large Value  vs.  High Yield Fund R5

Pace Large Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace Large Value has generated negative risk-adjusted returns adding no value to fund investors. 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.

High Yield Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Yield Fund R5 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, High-yield Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pace Large and High-yield Fund

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

The idea behind Pace Large Value and High Yield Fund R5 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.