Correlation Between PIMCO Investment and IShares IG

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

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

Diversification Opportunities for PIMCO Investment and IShares IG

0.9

Correlation Coefficient

PIMCO Investment  IShares IG

Almost no diversification

The 3 months correlation between PIMCO and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO Investment Grade and iShares IG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares IG Corporate and PIMCO Investment 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 PIMCO Investment Grade are associated (or correlated) with IShares IG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares IG Corporate has no effect on the direction of PIMCO Investment i.e., PIMCO Investment and IShares IG go up and down completely randomly.

Pair Corralation between PIMCO Investment and IShares IG

Assuming the 90 days trading horizon PIMCO Investment is expected to generate 1.11 times less return on investment than IShares IG. In addition to that, PIMCO Investment is 1.23 times more volatile than iShares IG Corporate. It trades about 0.1 of its total potential returns per unit of risk. iShares IG Corporate is currently generating about 0.14 per unit of volatility. If you would invest  1,942  in iShares IG Corporate on December 2, 2024 and sell it today you would earn a total of  53.00  from holding iShares IG Corporate or generate 2.73% return on investment over 90 days.

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

PIMCO Investment Grade  vs.  iShares IG Corporate

PIMCO Investment Grade

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Investment Grade are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, PIMCO Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares IG Corporate

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares IG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares IG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PIMCO Investment and IShares IG

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

The idea behind PIMCO Investment Grade and iShares IG Corporate 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.