Correlation Between Fundamental Large and Pimco Rae

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

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

Diversification Opportunities for Fundamental Large and Pimco Rae

0.26

Correlation Coefficient

Fundamental Large  Pimco Rae

Modest diversification

The 3 months correlation between Fundamental and Pimco is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental 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 Fundamental Large 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 Fundamental 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 Fundamental Large i.e., Fundamental Large and Pimco Rae go up and down completely randomly.

Pair Corralation between Fundamental Large and Pimco Rae

Assuming the 90 days horizon Fundamental Large Cap is expected to under-perform the Pimco Rae. In addition to that, Fundamental Large is 1.14 times more volatile than Pimco Rae Plus. It trades about -0.09 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Fundamental Large Cap  vs.  Pimco Rae Plus

Fundamental Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fundamental Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fundamental Large 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 Fundamental Large and Pimco Rae

The main advantage of trading using opposite Fundamental Large and Pimco Rae positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Large 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 Fundamental 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.