Correlation Between IShares 1 and PIMCO Enhanced

Can any of the company-specific risk be diversified away by investing in both IShares 1 and PIMCO Enhanced 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 1 and PIMCO Enhanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 1 5 Year and PIMCO Enhanced Low, you can compare the effects of market volatilities on IShares 1 and PIMCO Enhanced 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 1 with a short position of PIMCO Enhanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 1 and PIMCO Enhanced.

Diversification Opportunities for IShares 1 and PIMCO Enhanced

0.61

Correlation Coefficient

IShares 1  PIMCO Enhanced

Poor diversification

The 3 months correlation between IShares and PIMCO is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding iShares 1 5 Year and PIMCO Enhanced Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Enhanced Low and IShares 1 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 1 5 Year are associated (or correlated) with PIMCO Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Enhanced Low has no effect on the direction of IShares 1 i.e., IShares 1 and PIMCO Enhanced go up and down completely randomly.

Pair Corralation between IShares 1 and PIMCO Enhanced

Given the investment horizon of 90 days IShares 1 is expected to generate 2.0 times less return on investment than PIMCO Enhanced. But when comparing it to its historical volatility, iShares 1 5 Year is 1.09 times less risky than PIMCO Enhanced. It trades about 0.0 of its potential returns per unit of risk. PIMCO Enhanced Low is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9,475  in PIMCO Enhanced Low on September 4, 2024 and sell it today you would earn a total of  4.00  from holding PIMCO Enhanced Low or generate 0.04% return on investment over 90 days.

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

iShares 1 5 Year  vs.  PIMCO Enhanced Low

iShares 1 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 1 5 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares 1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PIMCO Enhanced Low

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO Enhanced Low has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, PIMCO Enhanced is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares 1 and PIMCO Enhanced

The main advantage of trading using opposite IShares 1 and PIMCO Enhanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 1 position performs unexpectedly, PIMCO Enhanced 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 Enhanced will offset losses from the drop in PIMCO Enhanced's long position.

The idea behind iShares 1 5 Year and PIMCO Enhanced Low 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.