Correlation Between PIMCO 15 and FlexShares IBoxx

Can any of the company-specific risk be diversified away by investing in both PIMCO 15 and FlexShares IBoxx 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 15 and FlexShares IBoxx into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PIMCO 15 Year and FlexShares iBoxx 5 Year, you can compare the effects of market volatilities on PIMCO 15 and FlexShares IBoxx 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 15 with a short position of FlexShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO 15 and FlexShares IBoxx.

Diversification Opportunities for PIMCO 15 and FlexShares IBoxx

0.76

Correlation Coefficient

PIMCO 15  FlexShares IBoxx

Poor diversification

The 3 months correlation between PIMCO and FlexShares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO 15 Year and FlexShares iBoxx 5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares iBoxx 5 and PIMCO 15 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 15 Year are associated (or correlated) with FlexShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares iBoxx 5 has no effect on the direction of PIMCO 15 i.e., PIMCO 15 and FlexShares IBoxx go up and down completely randomly.

Pair Corralation between PIMCO 15 and FlexShares IBoxx

Given the investment horizon of 90 days PIMCO 15 Year is expected to under-perform the FlexShares IBoxx. In addition to that, PIMCO 15 is 2.82 times more volatile than FlexShares iBoxx 5 Year. It trades about -0.01 of its total potential returns per unit of risk. FlexShares iBoxx 5 Year is currently generating about 0.09 per unit of volatility. If you would invest  2,355  in FlexShares iBoxx 5 Year on November 28, 2024 and sell it today you would earn a total of  31.00  from holding FlexShares iBoxx 5 Year or generate 1.32% return on investment over 90 days.

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

PIMCO 15 Year  vs.  FlexShares iBoxx 5 Year

PIMCO 15 Year

Risk-Adjusted Performance

Weak

Over the last 90 days PIMCO 15 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, PIMCO 15 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

FlexShares iBoxx 5

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares iBoxx 5 Year are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PIMCO 15 and FlexShares IBoxx

The main advantage of trading using opposite PIMCO 15 and FlexShares IBoxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO 15 position performs unexpectedly, FlexShares IBoxx 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 FlexShares IBoxx will offset losses from the drop in FlexShares IBoxx's long position.

The idea behind PIMCO 15 Year and FlexShares iBoxx 5 Year 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.