Correlation Between Pimco Inflation and Emerging Markets

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

By analyzing existing cross correlation between Pimco Inflation Response and Emerging Markets Bond, you can compare the effects of market volatilities on Pimco Inflation and Emerging Markets 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 Inflation with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pimco Inflation and Emerging Markets.

Diversification Opportunities for Pimco Inflation and Emerging Markets

0.77

Correlation Coefficient

Pimco Inflation  Emerging Markets

Poor diversification

The 3 months correlation between Pimco and Emerging is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Pimco Inflation Response and Emerging Markets Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Bond and Pimco Inflation 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 Inflation Response are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Bond has no effect on the direction of Pimco Inflation i.e., Pimco Inflation and Emerging Markets go up and down completely randomly.

Pair Corralation between Pimco Inflation and Emerging Markets

Assuming the 90 days horizon Pimco Inflation Response is expected to generate 0.88 times more return on investment than Emerging Markets. However, Pimco Inflation Response is 1.13 times less risky than Emerging Markets. It trades about 0.36 of its potential returns per unit of risk. Emerging Markets Bond is currently generating about 0.15 per unit of risk. If you would invest  812.00  in Pimco Inflation Response on December 30, 2024 and sell it today you would earn a total of  47.00  from holding Pimco Inflation Response or generate 5.79% return on investment over 90 days.

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

Pimco Inflation Response  vs.  Emerging Markets Bond

Pimco Inflation Response

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Inflation Response are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Pimco Inflation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Bond are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Emerging Markets 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 Inflation and Emerging Markets

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

The idea behind Pimco Inflation Response and Emerging Markets Bond 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.