Correlation Between Vanguard Large and Pacer Lunt

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

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

Diversification Opportunities for Vanguard Large and Pacer Lunt

0.95

Correlation Coefficient

Vanguard Large  Pacer Lunt

Almost no diversification

The 3 months correlation between Vanguard and Pacer is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and Pacer Lunt Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt Large and Vanguard 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 Vanguard Large Cap Index are associated (or correlated) with Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt Large has no effect on the direction of Vanguard Large i.e., Vanguard Large and Pacer Lunt go up and down completely randomly.

Pair Corralation between Vanguard Large and Pacer Lunt

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.0 times more return on investment than Pacer Lunt. However, Vanguard Large is 1.0 times more volatile than Pacer Lunt Large. It trades about 0.18 of its potential returns per unit of risk. Pacer Lunt Large is currently generating about 0.1 per unit of risk. If you would invest  25,753  in Vanguard Large Cap Index on September 14, 2024 and sell it today you would earn a total of  2,100  from holding Vanguard Large Cap Index or generate 8.15% return on investment over 90 days.

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

Vanguard Large Cap Index  vs.  Pacer Lunt Large

Vanguard Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pacer Lunt Large

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Lunt Large are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Pacer Lunt is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Large and Pacer Lunt

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

The idea behind Vanguard Large Cap Index and Pacer Lunt Large 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.