Correlation Between Pace Large and Federated Clover

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

Diversification Opportunities for Pace Large and Federated Clover

0.1

Correlation Coefficient

Pace Large  Federated Clover

Average diversification

The 3 months correlation between Pace and Federated is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Value and Federated Clover Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Clover Small 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 Federated Clover. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Clover Small has no effect on the direction of Pace Large i.e., Pace Large and Federated Clover go up and down completely randomly.

Pair Corralation between Pace Large and Federated Clover

Assuming the 90 days horizon Pace Large Value is expected to generate 0.68 times more return on investment than Federated Clover. However, Pace Large Value is 1.47 times less risky than Federated Clover. It trades about 0.09 of its potential returns per unit of risk. Federated Clover Small is currently generating about -0.08 per unit of risk. If you would invest  2,013  in Pace Large Value on December 29, 2024 and sell it today you would earn a total of  80.00  from holding Pace Large Value or generate 3.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Pace Large Value  vs.  Federated Clover Small

Pace Large Value

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Value are ranked lower than 6 (%) 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.

Federated Clover Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federated Clover Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Federated Clover 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 Federated Clover

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

The idea behind Pace Large Value and Federated Clover Small 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.