Correlation Between ETRACS 2xMonthly and Pacer Emerging

Can any of the company-specific risk be diversified away by investing in both ETRACS 2xMonthly and Pacer Emerging 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 ETRACS 2xMonthly and Pacer Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS 2xMonthly Pay and Pacer Emerging Markets, you can compare the effects of market volatilities on ETRACS 2xMonthly and Pacer Emerging 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 ETRACS 2xMonthly with a short position of Pacer Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS 2xMonthly and Pacer Emerging.

Diversification Opportunities for ETRACS 2xMonthly and Pacer Emerging

0.62

Correlation Coefficient

ETRACS 2xMonthly  Pacer Emerging

Poor diversification

The 3 months correlation between ETRACS and Pacer is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS 2xMonthly Pay and Pacer Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Emerging Markets and ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay are associated (or correlated) with Pacer Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Emerging Markets has no effect on the direction of ETRACS 2xMonthly i.e., ETRACS 2xMonthly and Pacer Emerging go up and down completely randomly.

Pair Corralation between ETRACS 2xMonthly and Pacer Emerging

Given the investment horizon of 90 days ETRACS 2xMonthly is expected to generate 2.62 times less return on investment than Pacer Emerging. But when comparing it to its historical volatility, ETRACS 2xMonthly Pay is 1.06 times less risky than Pacer Emerging. It trades about 0.01 of its potential returns per unit of risk. Pacer Emerging Markets is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,997  in Pacer Emerging Markets on September 4, 2024 and sell it today you would earn a total of  41.00  from holding Pacer Emerging Markets or generate 2.05% return on investment over 90 days.

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

ETRACS 2xMonthly Pay  vs.  Pacer Emerging Markets

ETRACS 2xMonthly Pay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETRACS 2xMonthly Pay has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, ETRACS 2xMonthly is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pacer Emerging Markets

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Emerging Markets are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Pacer Emerging is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ETRACS 2xMonthly and Pacer Emerging

The main advantage of trading using opposite ETRACS 2xMonthly and Pacer Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS 2xMonthly position performs unexpectedly, Pacer Emerging 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 Emerging will offset losses from the drop in Pacer Emerging's long position.

The idea behind ETRACS 2xMonthly Pay and Pacer Emerging Markets 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.