Correlation Between Small Cap and Pimco Mortgage

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

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

Diversification Opportunities for Small Cap and Pimco Mortgage

0.38

Correlation Coefficient

Small Cap  Pimco Mortgage

Weak diversification

The 3 months correlation between Small and Pimco is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Pimco Mortgage Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Mortgage Oppor and Small Cap 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 Small Cap Stock are associated (or correlated) with Pimco Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Mortgage Oppor has no effect on the direction of Small Cap i.e., Small Cap and Pimco Mortgage go up and down completely randomly.

Pair Corralation between Small Cap and Pimco Mortgage

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Pimco Mortgage. In addition to that, Small Cap is 6.45 times more volatile than Pimco Mortgage Opportunities. It trades about -0.01 of its total potential returns per unit of risk. Pimco Mortgage Opportunities is currently generating about 0.04 per unit of volatility. If you would invest  915.00  in Pimco Mortgage Opportunities on October 25, 2024 and sell it today you would earn a total of  5.00  from holding Pimco Mortgage Opportunities or generate 0.55% return on investment over 90 days.

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

Small Cap Stock  vs.  Pimco Mortgage Opportunities

Small Cap Stock

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pimco Mortgage Oppor

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Mortgage Opportunities are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Pimco Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Pimco Mortgage

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

The idea behind Small Cap Stock and Pimco Mortgage Opportunities 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.