Correlation Between Orchid Island and Pimco Municipal

Can any of the company-specific risk be diversified away by investing in both Orchid Island and Pimco Municipal 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 Orchid Island and Pimco Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Orchid Island Capital and Pimco Municipal Income, you can compare the effects of market volatilities on Orchid Island and Pimco Municipal 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 Orchid Island with a short position of Pimco Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orchid Island and Pimco Municipal.

Diversification Opportunities for Orchid Island and Pimco Municipal

-0.5

Correlation Coefficient

Orchid Island  Pimco Municipal

Very good diversification

The 3 months correlation between Orchid and Pimco is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Pimco Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Municipal Income and Orchid Island 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 Orchid Island Capital are associated (or correlated) with Pimco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Municipal Income has no effect on the direction of Orchid Island i.e., Orchid Island and Pimco Municipal go up and down completely randomly.

Pair Corralation between Orchid Island and Pimco Municipal

Considering the 90-day investment horizon Orchid Island Capital is expected to generate 1.17 times more return on investment than Pimco Municipal. However, Orchid Island is 1.17 times more volatile than Pimco Municipal Income. It trades about 0.09 of its potential returns per unit of risk. Pimco Municipal Income is currently generating about -0.36 per unit of risk. If you would invest  781.00  in Orchid Island Capital on October 7, 2024 and sell it today you would earn a total of  12.00  from holding Orchid Island Capital or generate 1.54% return on investment over 90 days.

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

Orchid Island Capital  vs.  Pimco Municipal Income

Orchid Island Capital

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Orchid Island Capital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Orchid Island may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pimco Municipal Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pimco Municipal Income has generated negative risk-adjusted returns adding no value to fund investors. Despite latest weak performance, the Fund's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the fund institutional investors.

Pair Trading with Orchid Island and Pimco Municipal

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

The idea behind Orchid Island Capital and Pimco Municipal Income 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.