Correlation Between Pace Smallmedium and American Funds

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

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

Diversification Opportunities for Pace Smallmedium and American Funds

0.83

Correlation Coefficient

Pace Smallmedium  American Funds

Very poor diversification

The 3 months correlation between Pace and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Pace Smallmedium Value and American Funds American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds American and Pace Smallmedium 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 Smallmedium Value are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds American has no effect on the direction of Pace Smallmedium i.e., Pace Smallmedium and American Funds go up and down completely randomly.

Pair Corralation between Pace Smallmedium and American Funds

Assuming the 90 days horizon Pace Smallmedium Value is expected to generate 1.95 times more return on investment than American Funds. However, Pace Smallmedium is 1.95 times more volatile than American Funds American. It trades about 0.11 of its potential returns per unit of risk. American Funds American is currently generating about 0.05 per unit of risk. If you would invest  1,999  in Pace Smallmedium Value on September 15, 2024 and sell it today you would earn a total of  140.00  from holding Pace Smallmedium Value or generate 7.0% return on investment over 90 days.

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

Pace Smallmedium Value  vs.  American Funds American

Pace Smallmedium Value

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Smallmedium Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pace Smallmedium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Funds American

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds American are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, American Funds 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 Smallmedium and American Funds

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

The idea behind Pace Smallmedium Value and American Funds American 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.