Correlation Between Pace Smallmedium and Small Midcap

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

Diversification Opportunities for Pace Smallmedium and Small Midcap

0.87

Correlation Coefficient

Pace Smallmedium  Small Midcap

Very poor diversification

The 3 months correlation between Pace and Small is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Pace Smallmedium Value and Small Midcap Dividend Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Midcap Dividend 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 Small Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Midcap Dividend has no effect on the direction of Pace Smallmedium i.e., Pace Smallmedium and Small Midcap go up and down completely randomly.

Pair Corralation between Pace Smallmedium and Small Midcap

Assuming the 90 days horizon Pace Smallmedium Value is expected to under-perform the Small Midcap. In addition to that, Pace Smallmedium is 1.97 times more volatile than Small Midcap Dividend Income. It trades about -0.11 of its total potential returns per unit of risk. Small Midcap Dividend Income is currently generating about -0.03 per unit of volatility. If you would invest  1,924  in Small Midcap Dividend Income on October 7, 2024 and sell it today you would lose (53.00) from holding Small Midcap Dividend Income or give up 2.75% of portfolio value over 90 days.

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

Pace Smallmedium Value  vs.  Small Midcap Dividend Income

Pace Smallmedium Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace Smallmedium Value 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 basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Small Midcap Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Midcap Dividend Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Small Midcap 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 Small Midcap

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

The idea behind Pace Smallmedium Value and Small Midcap Dividend Income 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.