Correlation Between Basic Materials and Pace Large

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

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

Diversification Opportunities for Basic Materials and Pace Large

0.93

Correlation Coefficient

Basic Materials  Pace Large

Almost no diversification

The 3 months correlation between Basic and Pace is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund 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 Basic Materials 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 Basic Materials Fund 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 Basic Materials i.e., Basic Materials and Pace Large go up and down completely randomly.

Pair Corralation between Basic Materials and Pace Large

Assuming the 90 days horizon Basic Materials is expected to generate 1.08 times less return on investment than Pace Large. In addition to that, Basic Materials is 1.17 times more volatile than Pace Large Growth. It trades about 0.21 of its total potential returns per unit of risk. Pace Large Growth is currently generating about 0.27 per unit of volatility. If you would invest  1,447  in Pace Large Growth on May 1, 2025 and sell it today you would earn a total of  181.00  from holding Pace Large Growth or generate 12.51% return on investment over 90 days.

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

Basic Materials Fund  vs.  Pace Large Growth

Basic Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Basic Materials may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pace Large Growth

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Growth are ranked lower than 20 (%) 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 August 2025.

Pair Trading with Basic Materials and Pace Large

The main advantage of trading using opposite Basic Materials and Pace Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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 Basic Materials Fund 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.