Correlation Between IShares SP and PIMCO ETF

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

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

Diversification Opportunities for IShares SP and PIMCO ETF

-0.11

Correlation Coefficient

IShares SP  PIMCO ETF

Good diversification

The 3 months correlation between IShares and PIMCO is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP GSCI 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 IShares SP 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 iShares SP GSCI 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 IShares SP i.e., IShares SP and PIMCO ETF go up and down completely randomly.

Pair Corralation between IShares SP and PIMCO ETF

Considering the 90-day investment horizon IShares SP is expected to generate 2.27 times less return on investment than PIMCO ETF. But when comparing it to its historical volatility, iShares SP GSCI is 8.19 times less risky than PIMCO ETF. It trades about 0.07 of its potential returns per unit of risk. PIMCO ETF Trust is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,802  in PIMCO ETF Trust on December 28, 2024 and sell it today you would lose (139.85) from holding PIMCO ETF Trust or give up 4.99% of portfolio value over 90 days.

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

iShares SP GSCI  vs.  PIMCO ETF Trust

iShares SP GSCI

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP GSCI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PIMCO ETF Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO ETF Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, PIMCO ETF may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares SP and PIMCO ETF

The main advantage of trading using opposite IShares SP and PIMCO ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 iShares SP GSCI 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.