Correlation Between Consumer Discretionary and Pacer Funds

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

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

Diversification Opportunities for Consumer Discretionary and Pacer Funds

0.88

Correlation Coefficient

Consumer Discretionary  Pacer Funds

Very poor diversification

The 3 months correlation between Consumer and Pacer is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select 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 Consumer Discretionary 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 Consumer Discretionary Select 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 Consumer Discretionary i.e., Consumer Discretionary and Pacer Funds go up and down completely randomly.

Pair Corralation between Consumer Discretionary and Pacer Funds

Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 0.84 times more return on investment than Pacer Funds. However, Consumer Discretionary Select is 1.19 times less risky than Pacer Funds. It trades about 0.19 of its potential returns per unit of risk. Pacer Funds Trust is currently generating about 0.14 per unit of risk. If you would invest  19,918  in Consumer Discretionary Select on October 1, 2024 and sell it today you would earn a total of  3,056  from holding Consumer Discretionary Select or generate 15.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Consumer Discretionary Select  vs.  Pacer Funds Trust

Consumer Discretionary

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

Pacer Funds Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Funds Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Pacer Funds disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consumer Discretionary and Pacer Funds

The main advantage of trading using opposite Consumer Discretionary and Pacer Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Discretionary 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 Consumer Discretionary Select 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.