Correlation Between Pace Large and Technology Ultrasector

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

By analyzing existing cross correlation between Pace Large Growth and Technology Ultrasector Profund, you can compare the effects of market volatilities on Pace Large and Technology Ultrasector 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 Technology Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace Large and Technology Ultrasector.

Diversification Opportunities for Pace Large and Technology Ultrasector

0.7

Correlation Coefficient

Pace Large  Technology Ultrasector

Poor diversification

The 3 months correlation between Pace and Technology is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Growth and Technology Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Ultrasector 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 Growth are associated (or correlated) with Technology Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Ultrasector has no effect on the direction of Pace Large i.e., Pace Large and Technology Ultrasector go up and down completely randomly.

Pair Corralation between Pace Large and Technology Ultrasector

Assuming the 90 days horizon Pace Large Growth is expected to under-perform the Technology Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Pace Large Growth is 1.09 times less risky than Technology Ultrasector. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Technology Ultrasector Profund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,834  in Technology Ultrasector Profund on September 19, 2024 and sell it today you would earn a total of  182.00  from holding Technology Ultrasector Profund or generate 4.75% return on investment over 90 days.

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

Pace Large Growth  vs.  Technology Ultrasector Profund

Pace Large Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Technology Ultrasector

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Ultrasector Profund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Technology Ultrasector 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 Large and Technology Ultrasector

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

The idea behind Pace Large Growth and Technology Ultrasector Profund 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.