Correlation Between State Street and Pimco Energy

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

By analyzing existing cross correlation between State Street Target and Pimco Energy Tactical, you can compare the effects of market volatilities on State Street and Pimco Energy 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 State Street with a short position of Pimco Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Pimco Energy.

Diversification Opportunities for State Street and Pimco Energy

-0.27

Correlation Coefficient

State Street  Pimco Energy

Very good diversification

The 3 months correlation between State and Pimco is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding State Street Target and Pimco Energy Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Energy Tactical and State Street 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 State Street Target are associated (or correlated) with Pimco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Energy Tactical has no effect on the direction of State Street i.e., State Street and Pimco Energy go up and down completely randomly.

Pair Corralation between State Street and Pimco Energy

Assuming the 90 days horizon State Street Target is expected to under-perform the Pimco Energy. But the mutual fund apears to be less risky and, when comparing its historical volatility, State Street Target is 3.33 times less risky than Pimco Energy. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Pimco Energy Tactical is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,646  in Pimco Energy Tactical on October 25, 2024 and sell it today you would earn a total of  116.00  from holding Pimco Energy Tactical or generate 4.38% return on investment over 90 days.

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

State Street Target  vs.  Pimco Energy Tactical

State Street Target

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pimco Energy Tactical

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Energy Tactical are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Pimco Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Street and Pimco Energy

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

The idea behind State Street Target and Pimco Energy Tactical 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.