Correlation Between American Beacon and Pimco Energy

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

By analyzing existing cross correlation between American Beacon Small and Pimco Energy Tactical, you can compare the effects of market volatilities on American Beacon and Pimco Energy 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 American Beacon with a short position of Pimco Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Beacon and Pimco Energy.

Diversification Opportunities for American Beacon and Pimco Energy

0.1

Correlation Coefficient

American Beacon  Pimco Energy

Average diversification

The 3 months correlation between American and Pimco is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Small and Pimco Energy Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Energy Tactical and American Beacon 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 American Beacon Small are associated (or correlated) with Pimco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Energy Tactical has no effect on the direction of American Beacon i.e., American Beacon and Pimco Energy go up and down completely randomly.

Pair Corralation between American Beacon and Pimco Energy

Assuming the 90 days horizon American Beacon is expected to generate 4.63 times less return on investment than Pimco Energy. But when comparing it to its historical volatility, American Beacon Small is 1.18 times less risky than Pimco Energy. It trades about 0.03 of its potential returns per unit of risk. Pimco Energy Tactical is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,397  in Pimco Energy Tactical on October 24, 2024 and sell it today you would earn a total of  1,779  from holding Pimco Energy Tactical or generate 127.34% return on investment over 90 days.

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

American Beacon Small  vs.  Pimco Energy Tactical

American Beacon Small

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pimco Energy Tactical

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Energy Tactical are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Pimco Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Beacon and Pimco Energy

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

The idea behind American Beacon Small and Pimco Energy Tactical 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 Managers module to screen money managers from public funds and ETFs managed around the world.