Correlation Between Pace Large and Eafe Fund

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

By analyzing existing cross correlation between Pace Large Growth and The Eafe Fund, you can compare the effects of market volatilities on Pace Large and Eafe 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 Eafe Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace Large and Eafe Fund.

Diversification Opportunities for Pace Large and Eafe Fund

0.38

Correlation Coefficient

Pace Large  Eafe Fund

Weak diversification

The 3 months correlation between Pace and Eafe is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Growth and The Eafe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe 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 Growth are associated (or correlated) with Eafe Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Fund has no effect on the direction of Pace Large i.e., Pace Large and Eafe Fund go up and down completely randomly.

Pair Corralation between Pace Large and Eafe Fund

Assuming the 90 days horizon Pace Large Growth is expected to generate 0.66 times more return on investment than Eafe Fund. However, Pace Large Growth is 1.52 times less risky than Eafe Fund. It trades about 0.19 of its potential returns per unit of risk. The Eafe Fund is currently generating about 0.09 per unit of risk. If you would invest  1,641  in Pace Large Growth on September 12, 2024 and sell it today you would earn a total of  156.00  from holding Pace Large Growth or generate 9.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Pace Large Growth  vs.  The Eafe Fund

Pace Large Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Growth are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pace Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Eafe Fund

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Eafe Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Eafe Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pace Large and Eafe Fund

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

The idea behind Pace Large Growth and The Eafe Fund 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.