Can any of the company-specific risk be diversified away by investing in both Pacer Global and Totl In 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 Global and Totl In into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pacer Global Cash and Totl In Rl, you can compare the effects of market volatilities on Pacer Global and Totl In 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 Global with a short position of Totl In. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacer Global and Totl In.
Diversification Opportunities for Pacer Global and Totl In
The 3 months correlation between Pacer and Totl is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Pacer Global Cash and Totl In Rl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Totl In Rl and Pacer Global 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 Global Cash are associated (or correlated) with Totl In. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Totl In Rl has no effect on the direction of Pacer Global i.e., Pacer Global and Totl In go up and down completely randomly.
Given the investment horizon of 90 days Pacer Global Cash is expected to generate 1.36 times more return on investment than Totl In. However, Pacer Global is 1.36 times more volatile than Totl In Rl. It trades about 0.0 of its potential returns per unit of risk. Totl In Rl is currently generating about -0.03 per unit of risk. If you would invest 3,258 in Pacer Global Cash on July 2, 2023 and sell it today you would lose (4.00) from holding Pacer Global Cash or give up 0.12% of portfolio value over 90 days.
Over the last 90 days Pacer Global Cash has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pacer Global is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Over the last 90 days Totl In Rl has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Totl In is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite Pacer Global and Totl In positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pacer Global position performs unexpectedly, Totl In 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 Totl In will offset losses from the drop in Totl In's long position.
The idea behind Pacer Global Cash and Totl In Rl 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.
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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