Correlation Between US Treasury and Pacer Large

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

By analyzing existing cross correlation between US Treasury 20 and Pacer Large Cap, you can compare the effects of market volatilities on US Treasury and Pacer 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 US Treasury with a short position of Pacer Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Treasury and Pacer Large.

Diversification Opportunities for US Treasury and Pacer Large

-0.66

Correlation Coefficient

US Treasury  Pacer Large

Excellent diversification

The 3 months correlation between UTWY and Pacer is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding US Treasury 20 and Pacer Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Large Cap and US Treasury 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 US Treasury 20 are associated (or correlated) with Pacer Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Large Cap has no effect on the direction of US Treasury i.e., US Treasury and Pacer Large go up and down completely randomly.

Pair Corralation between US Treasury and Pacer Large

Given the investment horizon of 90 days US Treasury 20 is expected to under-perform the Pacer Large. But the etf apears to be less risky and, when comparing its historical volatility, US Treasury 20 is 1.44 times less risky than Pacer Large. The etf trades about -0.14 of its potential returns per unit of risk. The Pacer Large Cap is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,772  in Pacer Large Cap on September 13, 2024 and sell it today you would earn a total of  541.00  from holding Pacer Large Cap or generate 19.52% return on investment over 90 days.

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

US Treasury 20  vs.  Pacer Large Cap

US Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, US Treasury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pacer Large Cap

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Large Cap are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Pacer Large reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Treasury and Pacer Large

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

The idea behind US Treasury 20 and Pacer Large Cap 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.