Correlation Between Dow Jones and PIMCO Tactical

Can any of the company-specific risk be diversified away by investing in both Dow Jones and PIMCO Tactical 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 Dow Jones and PIMCO Tactical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dow Jones Industrial and PIMCO Tactical Income, you can compare the effects of market volatilities on Dow Jones and PIMCO Tactical 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 Dow Jones with a short position of PIMCO Tactical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and PIMCO Tactical.

Diversification Opportunities for Dow Jones and PIMCO Tactical

0.11

Correlation Coefficient

Dow Jones  PIMCO Tactical

Average diversification

The 3 months correlation between Dow and PIMCO is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and PIMCO Tactical Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Tactical Income and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with PIMCO Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Tactical Income has no effect on the direction of Dow Jones i.e., Dow Jones and PIMCO Tactical go up and down completely randomly.

Pair Corralation between Dow Jones and PIMCO Tactical

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.15 times less return on investment than PIMCO Tactical. But when comparing it to its historical volatility, Dow Jones Industrial is 1.12 times less risky than PIMCO Tactical. It trades about 0.07 of its potential returns per unit of risk. PIMCO Tactical Income is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  588.00  in PIMCO Tactical Income on October 7, 2024 and sell it today you would earn a total of  90.00  from holding PIMCO Tactical Income or generate 15.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Dow Jones Industrial  vs.  PIMCO Tactical Income

Pair Trading with Dow Jones and PIMCO Tactical

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

The idea behind Dow Jones Industrial and PIMCO Tactical Income 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.