Correlation Between Foreign Bond and Pimco Rae

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

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

Diversification Opportunities for Foreign Bond and Pimco Rae

0.36

Correlation Coefficient

Foreign Bond  Pimco Rae

Weak diversification

The 3 months correlation between Foreign and Pimco is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Bond Fund and Pimco Rae Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Rae Fundamental and Foreign Bond 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 Foreign Bond Fund are associated (or correlated) with Pimco Rae. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Rae Fundamental has no effect on the direction of Foreign Bond i.e., Foreign Bond and Pimco Rae go up and down completely randomly.

Pair Corralation between Foreign Bond and Pimco Rae

Assuming the 90 days horizon Foreign Bond Fund is expected to generate 0.29 times more return on investment than Pimco Rae. However, Foreign Bond Fund is 3.45 times less risky than Pimco Rae. It trades about -0.52 of its potential returns per unit of risk. Pimco Rae Fundamental is currently generating about -0.44 per unit of risk. If you would invest  752.00  in Foreign Bond Fund on October 13, 2024 and sell it today you would lose (28.00) from holding Foreign Bond Fund or give up 3.72% of portfolio value over 90 days.

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

Foreign Bond Fund  vs.  Pimco Rae Fundamental

Foreign Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pimco Rae Fundamental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pimco Rae Fundamental has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Foreign Bond and Pimco Rae

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

The idea behind Foreign Bond Fund and Pimco Rae Fundamental 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.