Correlation Between Smallcap and Pace Large

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

By analyzing existing cross correlation between Smallcap Sp 600 and Pace Large Growth, you can compare the effects of market volatilities on Smallcap and Pace Large 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 Smallcap with a short position of Pace Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap and Pace Large.

Diversification Opportunities for Smallcap and Pace Large

0.6

Correlation Coefficient

Smallcap  Pace Large

Poor diversification

The 3 months correlation between Smallcap and Pace is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Sp 600 and Pace Large Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Large Growth and Smallcap 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 Smallcap Sp 600 are associated (or correlated) with Pace Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Large Growth has no effect on the direction of Smallcap i.e., Smallcap and Pace Large go up and down completely randomly.

Pair Corralation between Smallcap and Pace Large

Assuming the 90 days horizon Smallcap is expected to generate 2.23 times less return on investment than Pace Large. In addition to that, Smallcap is 1.46 times more volatile than Pace Large Growth. It trades about 0.06 of its total potential returns per unit of risk. Pace Large Growth is currently generating about 0.19 per unit of volatility. If you would invest  1,501  in Pace Large Growth on May 10, 2025 and sell it today you would earn a total of  132.00  from holding Pace Large Growth or generate 8.79% return on investment over 90 days.

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

Smallcap Sp 600  vs.  Pace Large Growth

Smallcap Sp 600

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Sp 600 are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Smallcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pace Large Growth

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Growth are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pace Large may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Smallcap and Pace Large

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

The idea behind Smallcap Sp 600 and Pace Large Growth 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.