Correlation Between Pace Large and Dreyfus Large

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

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

Diversification Opportunities for Pace Large and Dreyfus Large

0.97

Correlation Coefficient

Pace Large  Dreyfus Large

Almost no diversification

The 3 months correlation between Pace and Dreyfus is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Value and Dreyfus Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Large Cap and Pace 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 Pace Large Value are associated (or correlated) with Dreyfus Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Large Cap has no effect on the direction of Pace Large i.e., Pace Large and Dreyfus Large go up and down completely randomly.

Pair Corralation between Pace Large and Dreyfus Large

Assuming the 90 days horizon Pace Large is expected to generate 1.56 times less return on investment than Dreyfus Large. But when comparing it to its historical volatility, Pace Large Value is 1.09 times less risky than Dreyfus Large. It trades about 0.16 of its potential returns per unit of risk. Dreyfus Large Cap is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,565  in Dreyfus Large Cap on September 4, 2024 and sell it today you would earn a total of  174.00  from holding Dreyfus Large Cap or generate 11.12% return on investment over 90 days.

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

Pace Large Value  vs.  Dreyfus Large Cap

Pace Large Value

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pace Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dreyfus Large Cap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dreyfus Large Cap are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dreyfus Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pace Large and Dreyfus Large

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

The idea behind Pace Large Value and Dreyfus 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.