Correlation Between Tax-managed and Pimco Rae

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

By analyzing existing cross correlation between Tax Managed Large Cap and Pimco Rae Plus, you can compare the effects of market volatilities on Tax-managed 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 Tax-managed with a short position of Pimco Rae. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Pimco Rae.

Diversification Opportunities for Tax-managed and Pimco Rae

0.71

Correlation Coefficient

Tax-managed  Pimco Rae

Poor diversification

The 3 months correlation between Tax-managed and Pimco is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Pimco Rae Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Rae Plus and Tax-managed 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 Tax Managed Large Cap 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 Plus has no effect on the direction of Tax-managed i.e., Tax-managed and Pimco Rae go up and down completely randomly.

Pair Corralation between Tax-managed and Pimco Rae

Assuming the 90 days horizon Tax Managed Large Cap is expected to under-perform the Pimco Rae. In addition to that, Tax-managed is 1.06 times more volatile than Pimco Rae Plus. It trades about -0.08 of its total potential returns per unit of risk. Pimco Rae Plus is currently generating about -0.02 per unit of volatility. If you would invest  1,892  in Pimco Rae Plus on December 22, 2024 and sell it today you would lose (21.00) from holding Pimco Rae Plus or give up 1.11% of portfolio value over 90 days.

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

Tax Managed Large Cap  vs.  Pimco Rae Plus

Tax Managed Large

Risk-Adjusted Performance

Very Weak

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

Pimco Rae Plus

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Tax-managed and Pimco Rae

The main advantage of trading using opposite Tax-managed and Pimco Rae positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed 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 Tax Managed Large Cap and Pimco Rae Plus 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.