Correlation Between Pacer Small and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Pacer Small and SPDR SP 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 Pacer Small and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pacer Small Cap and SPDR SP 600, you can compare the effects of market volatilities on Pacer Small and SPDR SP 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 Pacer Small with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacer Small and SPDR SP.
Diversification Opportunities for Pacer Small and SPDR SP
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Pacer and SPDR is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Pacer Small Cap and SPDR SP 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 600 and Pacer Small 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 Pacer Small Cap are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 600 has no effect on the direction of Pacer Small i.e., Pacer Small and SPDR SP go up and down completely randomly.
Pair Corralation between Pacer Small and SPDR SP
Given the investment horizon of 90 days Pacer Small is expected to generate 16.84 times less return on investment than SPDR SP. In addition to that, Pacer Small is 1.04 times more volatile than SPDR SP 600. It trades about 0.0 of its total potential returns per unit of risk. SPDR SP 600 is currently generating about 0.07 per unit of volatility. If you would invest 7,930 in SPDR SP 600 on August 27, 2024 and sell it today you would earn a total of 1,393 from holding SPDR SP 600 or generate 17.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pacer Small Cap vs. SPDR SP 600
Performance |
| Timeline |
| Pacer Small Cap |
| SPDR SP 600 |
Pacer Small and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pacer Small and SPDR SP
The main advantage of trading using opposite Pacer Small and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pacer Small position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind Pacer Small Cap and SPDR SP 600 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.| SPDR SP vs. Dimensional ETF Trust | SPDR SP vs. Vanguard Small Cap Index | SPDR SP vs. First Trust Multi Manager | SPDR SP vs. Vanguard SP Small Cap |
Check out your portfolio center.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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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