Correlation Between SPDR Portfolio and Pacer Cash

Can any of the company-specific risk be diversified away by investing in both SPDR Portfolio and Pacer Cash 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 SPDR Portfolio and Pacer Cash into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPDR Portfolio Aggregate and Pacer Cash Cows, you can compare the effects of market volatilities on SPDR Portfolio and Pacer Cash 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 SPDR Portfolio with a short position of Pacer Cash. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and Pacer Cash.

Diversification Opportunities for SPDR Portfolio and Pacer Cash

0.37

Correlation Coefficient

SPDR Portfolio  Pacer Cash

Weak diversification

The 3 months correlation between SPDR and Pacer is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Aggregate and Pacer Cash Cows in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Cash Cows and SPDR Portfolio 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 SPDR Portfolio Aggregate are associated (or correlated) with Pacer Cash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Cash Cows has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Pacer Cash go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Pacer Cash

Given the investment horizon of 90 days SPDR Portfolio Aggregate is expected to generate 0.35 times more return on investment than Pacer Cash. However, SPDR Portfolio Aggregate is 2.85 times less risky than Pacer Cash. It trades about 0.31 of its potential returns per unit of risk. Pacer Cash Cows is currently generating about -0.2 per unit of risk. If you would invest  2,499  in SPDR Portfolio Aggregate on December 5, 2024 and sell it today you would earn a total of  53.00  from holding SPDR Portfolio Aggregate or generate 2.12% return on investment over 90 days.

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

SPDR Portfolio Aggregate  vs.  Pacer Cash Cows

SPDR Portfolio Aggregate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Aggregate are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pacer Cash Cows

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacer Cash Cows has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with SPDR Portfolio and Pacer Cash

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

The idea behind SPDR Portfolio Aggregate and Pacer Cash Cows 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.