Correlation Between Pimco Diversified and Franklin Emerging

Can any of the company-specific risk be diversified away by investing in both Pimco Diversified and Franklin Emerging 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 Franklin Emerging 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 Franklin Emerging Market, you can compare the effects of market volatilities on Pimco Diversified and Franklin Emerging 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 Franklin Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pimco Diversified and Franklin Emerging.

Diversification Opportunities for Pimco Diversified and Franklin Emerging

0.61

Correlation Coefficient

Pimco Diversified  Franklin Emerging

Poor diversification

The 3 months correlation between Pimco and Franklin is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Pimco Diversified Income and Franklin Emerging Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Emerging Market 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 Franklin Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Emerging Market has no effect on the direction of Pimco Diversified i.e., Pimco Diversified and Franklin Emerging go up and down completely randomly.

Pair Corralation between Pimco Diversified and Franklin Emerging

Assuming the 90 days horizon Pimco Diversified is expected to generate 1.22 times less return on investment than Franklin Emerging. But when comparing it to its historical volatility, Pimco Diversified Income is 1.32 times less risky than Franklin Emerging. It trades about 0.16 of its potential returns per unit of risk. Franklin Emerging Market is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  991.00  in Franklin Emerging Market on October 5, 2024 and sell it today you would earn a total of  169.00  from holding Franklin Emerging Market or generate 17.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.68%
Values	Daily Returns

Pimco Diversified Income  vs.  Franklin Emerging Market

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.

Franklin Emerging Market

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pimco Diversified and Franklin Emerging

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

The idea behind Pimco Diversified Income and Franklin Emerging Market 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.