Correlation Between Pace Small/medium and American Beacon

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

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

Diversification Opportunities for Pace Small/medium and American Beacon

0.18

Correlation Coefficient

Pace Small/medium  American Beacon

Average diversification

The 3 months correlation between Pace and American is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Pace Smallmedium Growth and American Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ark and Pace Small/medium 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 Growth are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Ark has no effect on the direction of Pace Small/medium i.e., Pace Small/medium and American Beacon go up and down completely randomly.

Pair Corralation between Pace Small/medium and American Beacon

Assuming the 90 days horizon Pace Smallmedium Growth is expected to under-perform the American Beacon. But the mutual fund apears to be less risky and, when comparing its historical volatility, Pace Smallmedium Growth is 2.03 times less risky than American Beacon. The mutual fund trades about -0.2 of its potential returns per unit of risk. The American Beacon Ark is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,587  in American Beacon Ark on December 2, 2024 and sell it today you would lose (99.00) from holding American Beacon Ark or give up 6.24% of portfolio value over 90 days.

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

Pace Smallmedium Growth  vs.  American Beacon Ark

Pace Smallmedium Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pace Smallmedium Growth 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

American Beacon Ark

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Beacon Ark has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Beacon 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 Small/medium and American Beacon

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

The idea behind Pace Smallmedium Growth and American Beacon Ark 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.