Correlation Between Principal Exchange and PIMCO Mortgage

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

By analyzing existing cross correlation between Principal Exchange Traded Funds and PIMCO Mortgage Backed Securities, you can compare the effects of market volatilities on Principal Exchange and PIMCO Mortgage 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 Principal Exchange with a short position of PIMCO Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Exchange and PIMCO Mortgage.

Diversification Opportunities for Principal Exchange and PIMCO Mortgage

0.93

Correlation Coefficient

Principal Exchange  PIMCO Mortgage

Almost no diversification

The 3 months correlation between Principal and PIMCO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Principal Exchange Traded Fund and PIMCO Mortgage Backed Securiti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Mortgage Backed and Principal Exchange 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 Principal Exchange Traded Funds are associated (or correlated) with PIMCO Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Mortgage Backed has no effect on the direction of Principal Exchange i.e., Principal Exchange and PIMCO Mortgage go up and down completely randomly.

Pair Corralation between Principal Exchange and PIMCO Mortgage

Allowing for the 90-day total investment horizon Principal Exchange Traded Funds is expected to generate 1.04 times more return on investment than PIMCO Mortgage. However, Principal Exchange is 1.04 times more volatile than PIMCO Mortgage Backed Securities. It trades about -0.03 of its potential returns per unit of risk. PIMCO Mortgage Backed Securities is currently generating about -0.06 per unit of risk. If you would invest  2,110  in Principal Exchange Traded Funds on September 12, 2024 and sell it today you would lose (15.00) from holding Principal Exchange Traded Funds or give up 0.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	88.89%
Values	Daily Returns

Principal Exchange Traded Fund  vs.  PIMCO Mortgage Backed Securiti

Principal Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Exchange Traded Funds has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Principal Exchange is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

PIMCO Mortgage Backed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO Mortgage Backed Securities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, PIMCO Mortgage is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Principal Exchange and PIMCO Mortgage

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

The idea behind Principal Exchange Traded Funds and PIMCO Mortgage Backed Securities 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..