Correlation Between Financial Services and Pace Large

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

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

Diversification Opportunities for Financial Services and Pace Large

0.86

Correlation Coefficient

Financial Services  Pace Large

Very poor diversification

The 3 months correlation between Financial and Pace is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Pace Large Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Large Value and Financial Services 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 Financial Services Fund are associated (or correlated) with Pace Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Large Value has no effect on the direction of Financial Services i.e., Financial Services and Pace Large go up and down completely randomly.

Pair Corralation between Financial Services and Pace Large

Assuming the 90 days horizon Financial Services Fund is expected to under-perform the Pace Large. In addition to that, Financial Services is 1.42 times more volatile than Pace Large Value. It trades about -0.19 of its total potential returns per unit of risk. Pace Large Value is currently generating about -0.18 per unit of volatility. If you would invest  2,093  in Pace Large Value on October 12, 2024 and sell it today you would lose (58.00) from holding Pace Large Value or give up 2.77% of portfolio value over 90 days.

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

Financial Services Fund  vs.  Pace Large Value

Financial Services

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pace Large Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace Large Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pace Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Services and Pace Large

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

The idea behind Financial Services Fund and Pace Large Value 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .