Correlation Between SPDR SP and Pacer Large

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

By analyzing existing cross correlation between SPDR SP 500 and Pacer Large Cap, you can compare the effects of market volatilities on SPDR SP and Pacer 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 SPDR SP with a short position of Pacer Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Pacer Large.

Diversification Opportunities for SPDR SP and Pacer Large

0.95

Correlation Coefficient

SPDR SP  Pacer Large

Almost no diversification

The 3 months correlation between SPDR and Pacer is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Pacer Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Large Cap and SPDR SP 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 SPDR SP 500 are associated (or correlated) with Pacer Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Large Cap has no effect on the direction of SPDR SP i.e., SPDR SP and Pacer Large go up and down completely randomly.

Pair Corralation between SPDR SP and Pacer Large

Considering the 90-day investment horizon SPDR SP is expected to generate 1.36 times less return on investment than Pacer Large. But when comparing it to its historical volatility, SPDR SP 500 is 1.38 times less risky than Pacer Large. It trades about 0.14 of its potential returns per unit of risk. Pacer Large Cap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,949  in Pacer Large Cap on August 26, 2024 and sell it today you would earn a total of  1,417  from holding Pacer Large Cap or generate 72.7% return on investment over 90 days.

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

SPDR SP 500  vs.  Pacer Large Cap

SPDR SP 500

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pacer Large Cap

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Large Cap are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Pacer Large reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and Pacer Large

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

The idea behind SPDR SP 500 and Pacer Large Cap 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.