Correlation Between First Trust and PIMCO Enhanced

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

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

Diversification Opportunities for First Trust and PIMCO Enhanced

0.54

Correlation Coefficient

First Trust  PIMCO Enhanced

Very weak diversification

The 3 months correlation between First and PIMCO is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Low 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 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 Low 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 First Trust i.e., First Trust and PIMCO Enhanced go up and down completely randomly.

Pair Corralation between First Trust and PIMCO Enhanced

Given the investment horizon of 90 days First Trust is expected to generate 2.02 times less return on investment than PIMCO Enhanced. In addition to that, First Trust is 1.18 times more volatile than PIMCO Enhanced Low. It trades about 0.06 of its total potential returns per unit of risk. PIMCO Enhanced Low is currently generating about 0.14 per unit of volatility. If you would invest  9,451  in PIMCO Enhanced Low on September 27, 2024 and sell it today you would earn a total of  74.00  from holding PIMCO Enhanced Low or generate 0.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

First Trust Low  vs.  PIMCO Enhanced Low

First Trust Low

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Low has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

PIMCO Enhanced Low

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Enhanced Low are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, PIMCO Enhanced is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and PIMCO Enhanced

The main advantage of trading using opposite First Trust and PIMCO Enhanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Low 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..