Correlation Between Pace High and Easterly Snow

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

By analyzing existing cross correlation between Pace High Yield and Easterly Snow Small, you can compare the effects of market volatilities on Pace High and Easterly Snow 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 High with a short position of Easterly Snow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace High and Easterly Snow.

Diversification Opportunities for Pace High and Easterly Snow

0.86

Correlation Coefficient

Pace High  Easterly Snow

Very poor diversification

The 3 months correlation between Pace and Easterly is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pace High Yield and Easterly Snow Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Easterly Snow Small and Pace High 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 High Yield are associated (or correlated) with Easterly Snow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Easterly Snow Small has no effect on the direction of Pace High i.e., Pace High and Easterly Snow go up and down completely randomly.

Pair Corralation between Pace High and Easterly Snow

Assuming the 90 days horizon Pace High is expected to generate 3.36 times less return on investment than Easterly Snow. But when comparing it to its historical volatility, Pace High Yield is 12.72 times less risky than Easterly Snow. It trades about 0.3 of its potential returns per unit of risk. Easterly Snow Small is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,073  in Easterly Snow Small on September 14, 2024 and sell it today you would earn a total of  411.00  from holding Easterly Snow Small or generate 6.77% return on investment over 90 days.

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

Pace High Yield  vs.  Easterly Snow Small

Pace High Yield

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pace High Yield are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pace High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Easterly Snow Small

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Easterly Snow Small are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Easterly Snow may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pace High and Easterly Snow

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

The idea behind Pace High Yield and Easterly Snow Small 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.