Correlation Between PIMCO Broad and FlexShares IBoxx

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

By analyzing existing cross correlation between PIMCO Broad TIPS and FlexShares iBoxx 3 Year, you can compare the effects of market volatilities on PIMCO Broad and FlexShares IBoxx 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 Broad with a short position of FlexShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO Broad and FlexShares IBoxx.

Diversification Opportunities for PIMCO Broad and FlexShares IBoxx

0.98

Correlation Coefficient

PIMCO Broad  FlexShares IBoxx

Almost no diversification

The 3 months correlation between PIMCO and FlexShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO Broad TIPS and FlexShares iBoxx 3 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares iBoxx 3 and PIMCO Broad 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 Broad TIPS are associated (or correlated) with FlexShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares iBoxx 3 has no effect on the direction of PIMCO Broad i.e., PIMCO Broad and FlexShares IBoxx go up and down completely randomly.

Pair Corralation between PIMCO Broad and FlexShares IBoxx

Given the investment horizon of 90 days PIMCO Broad TIPS is expected to generate 1.93 times more return on investment than FlexShares IBoxx. However, PIMCO Broad is 1.93 times more volatile than FlexShares iBoxx 3 Year. It trades about 0.2 of its potential returns per unit of risk. FlexShares iBoxx 3 Year is currently generating about 0.34 per unit of risk. If you would invest  5,174  in PIMCO Broad TIPS on December 30, 2024 and sell it today you would earn a total of  197.00  from holding PIMCO Broad TIPS or generate 3.81% return on investment over 90 days.

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

PIMCO Broad TIPS  vs.  FlexShares iBoxx 3 Year

PIMCO Broad TIPS

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Broad TIPS are ranked lower than 16 (%) 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.

FlexShares iBoxx 3

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares iBoxx 3 Year are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PIMCO Broad and FlexShares IBoxx

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

The idea behind PIMCO Broad TIPS and FlexShares iBoxx 3 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..