Correlation Between Fundamental Large and Pace Large

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

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

Diversification Opportunities for Fundamental Large and Pace Large

0.77

Correlation Coefficient

Fundamental Large  Pace Large

Poor diversification

The 3 months correlation between Fundamental and Pace is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap 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 Fundamental 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 Fundamental Large Cap 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 Fundamental Large i.e., Fundamental Large and Pace Large go up and down completely randomly.

Pair Corralation between Fundamental Large and Pace Large

Assuming the 90 days horizon Fundamental Large Cap is expected to generate 1.08 times more return on investment than Pace Large. However, Fundamental Large is 1.08 times more volatile than Pace Large Value. It trades about 0.18 of its potential returns per unit of risk. Pace Large Value is currently generating about 0.16 per unit of risk. If you would invest  7,090  in Fundamental Large Cap on August 31, 2024 and sell it today you would earn a total of  588.00  from holding Fundamental Large Cap or generate 8.29% return on investment over 90 days.

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

Fundamental Large Cap  vs.  Pace Large Value

Fundamental Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fundamental Large may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pace Large Value

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Value are ranked lower than 12 (%) 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 December 2024.

Pair Trading with Fundamental Large and Pace Large

The main advantage of trading using opposite Fundamental Large and Pace Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Large 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 Fundamental Large Cap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.