Correlation Between Pace Small/medium and Russell 2000

Can any of the company-specific risk be diversified away by investing in both Pace Small/medium and Russell 2000 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 Russell 2000 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 Russell 2000 2x, you can compare the effects of market volatilities on Pace Small/medium and Russell 2000 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 Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace Small/medium and Russell 2000.

Diversification Opportunities for Pace Small/medium and Russell 2000

0.94

Correlation Coefficient

Pace Small/medium  Russell 2000

Almost no diversification

The 3 months correlation between Pace and Russell is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Pace Smallmedium Growth and Russell 2000 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 2x 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 Russell 2000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell 2000 2x has no effect on the direction of Pace Small/medium i.e., Pace Small/medium and Russell 2000 go up and down completely randomly.

Pair Corralation between Pace Small/medium and Russell 2000

Assuming the 90 days horizon Pace Small/medium is expected to generate 2.02 times less return on investment than Russell 2000. But when comparing it to its historical volatility, Pace Smallmedium Growth is 2.18 times less risky than Russell 2000. It trades about 0.03 of its potential returns per unit of risk. Russell 2000 2x is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  12,381  in Russell 2000 2x on October 4, 2024 and sell it today you would earn a total of  1,596  from holding Russell 2000 2x or generate 12.89% return on investment over 90 days.

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

Pace Smallmedium Growth  vs.  Russell 2000 2x

Pace Smallmedium Growth

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Smallmedium Growth are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pace Small/medium is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Russell 2000 2x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Russell 2000 2x has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Russell 2000 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 Russell 2000

The main advantage of trading using opposite Pace Small/medium and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pace Small/medium position performs unexpectedly, Russell 2000 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 Russell 2000 will offset losses from the drop in Russell 2000's long position.

The idea behind Pace Smallmedium Growth and Russell 2000 2x 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.