Correlation Between ETRACS 2xMonthly and PIMCO ETF

Can any of the company-specific risk be diversified away by investing in both ETRACS 2xMonthly and PIMCO ETF 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 ETRACS 2xMonthly and PIMCO ETF into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS 2xMonthly Pay and PIMCO ETF Trust, you can compare the effects of market volatilities on ETRACS 2xMonthly and PIMCO ETF 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 ETRACS 2xMonthly with a short position of PIMCO ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS 2xMonthly and PIMCO ETF.

Diversification Opportunities for ETRACS 2xMonthly and PIMCO ETF

-0.35

Correlation Coefficient

ETRACS 2xMonthly  PIMCO ETF

Very good diversification

The 3 months correlation between ETRACS and PIMCO is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS 2xMonthly Pay and PIMCO ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO ETF Trust and ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay are associated (or correlated) with PIMCO ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO ETF Trust has no effect on the direction of ETRACS 2xMonthly i.e., ETRACS 2xMonthly and PIMCO ETF go up and down completely randomly.

Pair Corralation between ETRACS 2xMonthly and PIMCO ETF

Given the investment horizon of 90 days ETRACS 2xMonthly Pay is expected to generate 0.15 times more return on investment than PIMCO ETF. However, ETRACS 2xMonthly Pay is 6.55 times less risky than PIMCO ETF. It trades about -0.1 of its potential returns per unit of risk. PIMCO ETF Trust is currently generating about -0.02 per unit of risk. If you would invest  918.00  in ETRACS 2xMonthly Pay on December 13, 2024 and sell it today you would lose (22.00) from holding ETRACS 2xMonthly Pay or give up 2.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

ETRACS 2xMonthly Pay  vs.  PIMCO ETF Trust

ETRACS 2xMonthly Pay

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETRACS 2xMonthly Pay has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, ETRACS 2xMonthly is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

PIMCO ETF Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO ETF Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, PIMCO ETF unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ETRACS 2xMonthly and PIMCO ETF

The main advantage of trading using opposite ETRACS 2xMonthly and PIMCO ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS 2xMonthly position performs unexpectedly, PIMCO ETF 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 ETF will offset losses from the drop in PIMCO ETF's long position.

The idea behind ETRACS 2xMonthly Pay and PIMCO ETF Trust 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.