Correlation Between Industrial Select and Pacer Funds

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

By analyzing existing cross correlation between Industrial Select Sector and Pacer Funds Trust, you can compare the effects of market volatilities on Industrial Select and Pacer Funds 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 Industrial Select with a short position of Pacer Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Pacer Funds.

Diversification Opportunities for Industrial Select and Pacer Funds

0.7

Correlation Coefficient

Industrial Select  Pacer Funds

Poor diversification

The 3 months correlation between Industrial and Pacer is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Pacer Funds Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Funds Trust and Industrial Select 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 Industrial Select Sector are associated (or correlated) with Pacer Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Funds Trust has no effect on the direction of Industrial Select i.e., Industrial Select and Pacer Funds go up and down completely randomly.

Pair Corralation between Industrial Select and Pacer Funds

Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.44 times more return on investment than Pacer Funds. However, Industrial Select Sector is 2.26 times less risky than Pacer Funds. It trades about 0.01 of its potential returns per unit of risk. Pacer Funds Trust is currently generating about -0.05 per unit of risk. If you would invest  13,385  in Industrial Select Sector on December 26, 2024 and sell it today you would earn a total of  64.00  from holding Industrial Select Sector or generate 0.48% return on investment over 90 days.

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

Industrial Select Sector  vs.  Pacer Funds Trust

Industrial Select Sector

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Industrial Select is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pacer Funds Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacer Funds Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with Industrial Select and Pacer Funds

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

The idea behind Industrial Select Sector and Pacer Funds Trust 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.