Correlation Between Sarofim Equity and Pace Municipal

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

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

Diversification Opportunities for Sarofim Equity and Pace Municipal

0.44

Correlation Coefficient

Sarofim Equity  Pace Municipal

Very weak diversification

The 3 months correlation between Sarofim and Pace is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sarofim Equity and Pace Municipal Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Municipal Fixed and Sarofim Equity 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 Sarofim Equity are associated (or correlated) with Pace Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Municipal Fixed has no effect on the direction of Sarofim Equity i.e., Sarofim Equity and Pace Municipal go up and down completely randomly.

Pair Corralation between Sarofim Equity and Pace Municipal

Assuming the 90 days horizon Sarofim Equity is expected to under-perform the Pace Municipal. In addition to that, Sarofim Equity is 8.53 times more volatile than Pace Municipal Fixed. It trades about -0.11 of its total potential returns per unit of risk. Pace Municipal Fixed is currently generating about -0.12 per unit of volatility. If you would invest  1,231  in Pace Municipal Fixed on September 29, 2024 and sell it today you would lose (21.00) from holding Pace Municipal Fixed or give up 1.71% of portfolio value over 90 days.

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

Sarofim Equity  vs.  Pace Municipal Fixed

Sarofim Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sarofim Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pace Municipal Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sarofim Equity and Pace Municipal

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

The idea behind Sarofim Equity and Pace Municipal 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.