Correlation Between First Trust and PIMCO ETF

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

By analyzing existing cross correlation between First Trust Global and PIMCO ETF Trust, you can compare the effects of market volatilities on First Trust and PIMCO ETF 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 First Trust with a short position of PIMCO ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and PIMCO ETF.

Diversification Opportunities for First Trust and PIMCO ETF

0.41

Correlation Coefficient

First Trust  PIMCO ETF

Very weak diversification

The 3 months correlation between First and PIMCO is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and PIMCO ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO ETF Trust and First Trust 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 First Trust Global are associated (or correlated) with PIMCO ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO ETF Trust has no effect on the direction of First Trust i.e., First Trust and PIMCO ETF go up and down completely randomly.

Pair Corralation between First Trust and PIMCO ETF

Given the investment horizon of 90 days First Trust is expected to generate 2.19 times less return on investment than PIMCO ETF. But when comparing it to its historical volatility, First Trust Global is 9.98 times less risky than PIMCO ETF. It trades about 0.22 of its potential returns per unit of risk. PIMCO ETF Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,500  in PIMCO ETF Trust on November 19, 2024 and sell it today you would earn a total of  168.00  from holding PIMCO ETF Trust or generate 6.72% return on investment over 90 days.

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

First Trust Global  vs.  PIMCO ETF Trust

First Trust Global

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in March 2025.

PIMCO ETF Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO ETF Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, PIMCO ETF unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and PIMCO ETF

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

The idea behind First Trust Global and PIMCO ETF Trust 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.