Correlation Between FlexShares IBoxx and PIMCO 1

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

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

Diversification Opportunities for FlexShares IBoxx and PIMCO 1

0.99

Correlation Coefficient

FlexShares IBoxx  PIMCO 1

No risk reduction

The 3 months correlation between FlexShares and PIMCO is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares iBoxx 5 Year and PIMCO 1 5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO 1 5 and FlexShares IBoxx 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 FlexShares iBoxx 5 Year are associated (or correlated) with PIMCO 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO 1 5 has no effect on the direction of FlexShares IBoxx i.e., FlexShares IBoxx and PIMCO 1 go up and down completely randomly.

Pair Corralation between FlexShares IBoxx and PIMCO 1

Given the investment horizon of 90 days FlexShares iBoxx 5 Year is expected to generate 1.95 times more return on investment than PIMCO 1. However, FlexShares IBoxx is 1.95 times more volatile than PIMCO 1 5 Year. It trades about 0.27 of its potential returns per unit of risk. PIMCO 1 5 Year is currently generating about 0.41 per unit of risk. If you would invest  2,320  in FlexShares iBoxx 5 Year on December 30, 2024 and sell it today you would earn a total of  96.00  from holding FlexShares iBoxx 5 Year or generate 4.14% return on investment over 90 days.

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

FlexShares iBoxx 5 Year  vs.  PIMCO 1 5 Year

FlexShares iBoxx 5

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares iBoxx 5 Year are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

PIMCO 1 5

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO 1 5 Year are ranked lower than 32 (%) 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.

Pair Trading with FlexShares IBoxx and PIMCO 1

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

The idea behind FlexShares iBoxx 5 Year and PIMCO 1 5 Year 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.

Check out your portfolio center.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.