Correlation Between PIMCO Mortgage and Vanguard Mid

Can any of the company-specific risk be diversified away by investing in both PIMCO Mortgage and Vanguard Mid 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 Vanguard Mid 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 Vanguard Mid Cap Index, you can compare the effects of market volatilities on PIMCO Mortgage and Vanguard Mid 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 Vanguard Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO Mortgage and Vanguard Mid.

Diversification Opportunities for PIMCO Mortgage and Vanguard Mid

0.45

Correlation Coefficient

PIMCO Mortgage  Vanguard Mid

Very weak diversification

The 3 months correlation between PIMCO and Vanguard is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO Mortgage Backed Securiti and Vanguard Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap 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 Vanguard Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of PIMCO Mortgage i.e., PIMCO Mortgage and Vanguard Mid go up and down completely randomly.

Pair Corralation between PIMCO Mortgage and Vanguard Mid

Given the investment horizon of 90 days PIMCO Mortgage is expected to generate 14.44 times less return on investment than Vanguard Mid. But when comparing it to its historical volatility, PIMCO Mortgage Backed Securities is 2.3 times less risky than Vanguard Mid. It trades about 0.01 of its potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  24,147  in Vanguard Mid Cap Index on December 2, 2024 and sell it today you would earn a total of  2,904  from holding Vanguard Mid Cap Index or generate 12.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	44.53%
Values	Daily Returns

PIMCO Mortgage Backed Securiti  vs.  Vanguard Mid Cap Index

PIMCO Mortgage Backed

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Mortgage Backed Securities are ranked lower than 6 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mid Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PIMCO Mortgage and Vanguard Mid

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

The idea behind PIMCO Mortgage Backed Securities and Vanguard Mid Cap Index 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.