Correlation Between Vanguard Extended and Pacer Lunt

Can any of the company-specific risk be diversified away by investing in both Vanguard Extended 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 Extended 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 Extended Market and Pacer Lunt MidCap, you can compare the effects of market volatilities on Vanguard Extended 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 Extended with a short position of Pacer Lunt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Pacer Lunt.

Diversification Opportunities for Vanguard Extended and Pacer Lunt

0.72

Correlation Coefficient

Vanguard Extended  Pacer Lunt

Poor diversification

The 3 months correlation between Vanguard and Pacer is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and Pacer Lunt MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt MidCap and Vanguard Extended 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 Extended Market 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 MidCap has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Pacer Lunt go up and down completely randomly.

Pair Corralation between Vanguard Extended and Pacer Lunt

Considering the 90-day investment horizon Vanguard Extended Market is expected to generate 1.24 times more return on investment than Pacer Lunt. However, Vanguard Extended is 1.24 times more volatile than Pacer Lunt MidCap. It trades about 0.13 of its potential returns per unit of risk. Pacer Lunt MidCap is currently generating about 0.09 per unit of risk. If you would invest  18,348  in Vanguard Extended Market on October 24, 2024 and sell it today you would earn a total of  1,740  from holding Vanguard Extended Market or generate 9.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Vanguard Extended Market  vs.  Pacer Lunt MidCap

Vanguard Extended Market

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Extended may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pacer Lunt MidCap

Risk-Adjusted Performance

7 of 100

Modest

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

Pair Trading with Vanguard Extended and Pacer Lunt

The main advantage of trading using opposite Vanguard Extended and Pacer Lunt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Extended 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 Extended Market and Pacer Lunt MidCap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.