Correlation Between Pace Large and Simt Small

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

Diversification Opportunities for Pace Large and Simt Small

0.81

Correlation Coefficient

Pace Large  Simt Small

Very poor diversification

The 3 months correlation between Pace and Simt is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Value and Simt Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Small Cap 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 Simt Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Small Cap has no effect on the direction of Pace Large i.e., Pace Large and Simt Small go up and down completely randomly.

Pair Corralation between Pace Large and Simt Small

Assuming the 90 days horizon Pace Large Value is expected to generate 0.49 times more return on investment than Simt Small. However, Pace Large Value is 2.06 times less risky than Simt Small. It trades about -0.09 of its potential returns per unit of risk. Simt Small Cap is currently generating about -0.34 per unit of risk. If you would invest  2,104  in Pace Large Value on December 5, 2024 and sell it today you would lose (27.00) from holding Pace Large Value or give up 1.28% 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.  Simt Small Cap

Pace Large Value

Risk-Adjusted Performance

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Simt Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simt Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Pace Large and Simt Small

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

The idea behind Pace Large Value and Simt Small 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.