Correlation Between PIMCO 1 and PIMCO Broad

Can any of the company-specific risk be diversified away by investing in both PIMCO 1 and PIMCO Broad 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 1 and PIMCO Broad into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PIMCO 1 5 Year and PIMCO Broad TIPS, you can compare the effects of market volatilities on PIMCO 1 and PIMCO Broad 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 1 with a short position of PIMCO Broad. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO 1 and PIMCO Broad.

Diversification Opportunities for PIMCO 1 and PIMCO Broad

0.88

Correlation Coefficient

PIMCO 1  PIMCO Broad

Very poor diversification

The 3 months correlation between PIMCO and PIMCO is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO 1 5 Year and PIMCO Broad TIPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Broad TIPS and PIMCO 1 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 1 5 Year are associated (or correlated) with PIMCO Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Broad TIPS has no effect on the direction of PIMCO 1 i.e., PIMCO 1 and PIMCO Broad go up and down completely randomly.

Pair Corralation between PIMCO 1 and PIMCO Broad

Given the investment horizon of 90 days PIMCO 1 is expected to generate 1.11 times less return on investment than PIMCO Broad. But when comparing it to its historical volatility, PIMCO 1 5 Year is 2.37 times less risky than PIMCO Broad. It trades about 0.39 of its potential returns per unit of risk. PIMCO Broad TIPS is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,174  in PIMCO Broad TIPS on December 28, 2024 and sell it today you would earn a total of  170.00  from holding PIMCO Broad TIPS or generate 3.29% return on investment over 90 days.

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

PIMCO 1 5 Year  vs.  PIMCO Broad TIPS

PIMCO 1 5

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO 1 5 Year are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, PIMCO 1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PIMCO Broad TIPS

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Broad TIPS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, PIMCO Broad 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 1 and PIMCO Broad

The main advantage of trading using opposite PIMCO 1 and PIMCO Broad positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO 1 position performs unexpectedly, PIMCO Broad 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 Broad will offset losses from the drop in PIMCO Broad's long position.

The idea behind PIMCO 1 5 Year and PIMCO Broad TIPS 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.