Correlation Between Pimco Diversified and Small Cap

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

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

Diversification Opportunities for Pimco Diversified and Small Cap

0.41

Correlation Coefficient

Pimco Diversified  Small Cap

Very weak diversification

The 3 months correlation between Pimco and Small is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Pimco Diversified Income and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Pimco Diversified 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 Diversified Income are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Pimco Diversified i.e., Pimco Diversified and Small Cap go up and down completely randomly.

Pair Corralation between Pimco Diversified and Small Cap

Assuming the 90 days horizon Pimco Diversified is expected to generate 1.09 times less return on investment than Small Cap. But when comparing it to its historical volatility, Pimco Diversified Income is 4.56 times less risky than Small Cap. It trades about 0.09 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,400  in Small Cap Value Fund on September 30, 2024 and sell it today you would earn a total of  329.00  from holding Small Cap Value Fund or generate 9.68% return on investment over 90 days.

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

Pimco Diversified Income  vs.  Small Cap Value Fund

Pimco Diversified Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pimco Diversified Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Pimco Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Pimco Diversified and Small Cap

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

The idea behind Pimco Diversified Income and Small Cap Value Fund 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.