Correlation Between Small Cap and Pimco Short

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

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

Diversification Opportunities for Small Cap and Pimco Short

-0.59

Correlation Coefficient

Small Cap  Pimco Short

Excellent diversification

The 3 months correlation between Small and Pimco is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Pimco Short Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Short Asset and Small Cap 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 Small Cap Value are associated (or correlated) with Pimco Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Short Asset has no effect on the direction of Small Cap i.e., Small Cap and Pimco Short go up and down completely randomly.

Pair Corralation between Small Cap and Pimco Short

Assuming the 90 days horizon Small Cap Value is expected to under-perform the Pimco Short. In addition to that, Small Cap is 12.07 times more volatile than Pimco Short Asset. It trades about -0.05 of its total potential returns per unit of risk. Pimco Short Asset is currently generating about 0.22 per unit of volatility. If you would invest  983.00  in Pimco Short Asset on December 28, 2024 and sell it today you would earn a total of  12.00  from holding Pimco Short Asset or generate 1.22% return on investment over 90 days.

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

Small Cap Value  vs.  Pimco Short Asset

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pimco Short Asset

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Short Asset are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Pimco Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Pimco Short

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

The idea behind Small Cap Value and Pimco Short Asset 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.