Correlation Between PIMCO Mortgage and BlackRock AAA

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

By analyzing existing cross correlation between PIMCO Mortgage Backed Securities and BlackRock AAA CLO, you can compare the effects of market volatilities on PIMCO Mortgage and BlackRock AAA 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 Mortgage with a short position of BlackRock AAA. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO Mortgage and BlackRock AAA.

Diversification Opportunities for PIMCO Mortgage and BlackRock AAA

0.82

Correlation Coefficient

PIMCO Mortgage  BlackRock AAA

Very poor diversification

The 3 months correlation between PIMCO and BlackRock is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO Mortgage Backed Securiti and BlackRock AAA CLO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock AAA CLO and PIMCO Mortgage 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 Mortgage Backed Securities are associated (or correlated) with BlackRock AAA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock AAA CLO has no effect on the direction of PIMCO Mortgage i.e., PIMCO Mortgage and BlackRock AAA go up and down completely randomly.

Pair Corralation between PIMCO Mortgage and BlackRock AAA

Given the investment horizon of 90 days PIMCO Mortgage Backed Securities is expected to generate 4.49 times more return on investment than BlackRock AAA. However, PIMCO Mortgage is 4.49 times more volatile than BlackRock AAA CLO. It trades about 0.15 of its potential returns per unit of risk. BlackRock AAA CLO is currently generating about 0.21 per unit of risk. If you would invest  4,763  in PIMCO Mortgage Backed Securities on December 28, 2024 and sell it today you would earn a total of  138.60  from holding PIMCO Mortgage Backed Securities or generate 2.91% return on investment over 90 days.

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

PIMCO Mortgage Backed Securiti  vs.  BlackRock AAA CLO

PIMCO Mortgage Backed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Mortgage Backed Securities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, PIMCO Mortgage is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

BlackRock AAA CLO

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock AAA CLO are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BlackRock AAA 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 Mortgage and BlackRock AAA

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

The idea behind PIMCO Mortgage Backed Securities and BlackRock AAA CLO 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.