Correlation Between Small Cap and Pace Alternative

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

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

Diversification Opportunities for Small Cap and Pace Alternative

0.92

Correlation Coefficient

Small Cap  Pace Alternative

Almost no diversification

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

Pair Corralation between Small Cap and Pace Alternative

Assuming the 90 days horizon Small Cap Value Fund is expected to generate 6.9 times more return on investment than Pace Alternative. However, Small Cap is 6.9 times more volatile than Pace Alternative Strategies. It trades about 0.14 of its potential returns per unit of risk. Pace Alternative Strategies is currently generating about 0.2 per unit of risk. If you would invest  3,378  in Small Cap Value Fund on May 21, 2025 and sell it today you would earn a total of  341.00  from holding Small Cap Value Fund or generate 10.09% return on investment over 90 days.

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

Small Cap Value Fund  vs.  Pace Alternative Strategies

Small Cap Value

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pace Alternative Str

Risk-Adjusted Performance

Solid

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

Pair Trading with Small Cap and Pace Alternative

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

The idea behind Small Cap Value Fund and Pace Alternative Strategies 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.