Correlation Between Pace Intermediate and Pace International

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

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

Diversification Opportunities for Pace Intermediate and Pace International

0.92

Correlation Coefficient

Pace Intermediate  Pace International

Almost no diversification

The 3 months correlation between Pace and Pace is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Pace Intermediate Fixed and Pace International Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace International Fixed and Pace Intermediate 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 Intermediate Fixed are associated (or correlated) with Pace International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace International Fixed has no effect on the direction of Pace Intermediate i.e., Pace Intermediate and Pace International go up and down completely randomly.

Pair Corralation between Pace Intermediate and Pace International

Assuming the 90 days horizon Pace Intermediate Fixed is expected to generate 0.68 times more return on investment than Pace International. However, Pace Intermediate Fixed is 1.47 times less risky than Pace International. It trades about -0.17 of its potential returns per unit of risk. Pace International Fixed is currently generating about -0.28 per unit of risk. If you would invest  1,078  in Pace Intermediate Fixed on September 27, 2024 and sell it today you would lose (28.00) from holding Pace Intermediate Fixed or give up 2.6% of portfolio value over 90 days.

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

Pace Intermediate Fixed  vs.  Pace International Fixed

Pace Intermediate Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace Intermediate Fixed has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pace Intermediate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pace International Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace International Fixed has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pace International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pace Intermediate and Pace International

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

The idea behind Pace Intermediate Fixed and Pace International Fixed 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.