Correlation Between Vanguard Long-term and Pimco Long-term

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

By analyzing existing cross correlation between Vanguard Long Term Treasury and Pimco Long Term Government, you can compare the effects of market volatilities on Vanguard Long-term and Pimco Long-term 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 Vanguard Long-term with a short position of Pimco Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Long-term and Pimco Long-term.

Diversification Opportunities for Vanguard Long-term and Pimco Long-term

1.0

Correlation Coefficient

Vanguard Long-term  Pimco Long-term

No risk reduction

The 3 months correlation between Vanguard and Pimco is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Long Term Treasury and Pimco Long Term Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Long Term and Vanguard Long-term 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 Vanguard Long Term Treasury are associated (or correlated) with Pimco Long-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Long Term has no effect on the direction of Vanguard Long-term i.e., Vanguard Long-term and Pimco Long-term go up and down completely randomly.

Pair Corralation between Vanguard Long-term and Pimco Long-term

Assuming the 90 days horizon Vanguard Long Term Treasury is expected to under-perform the Pimco Long-term. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Long Term Treasury is 14.98 times less risky than Pimco Long-term. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Pimco Long Term Government is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,437  in Pimco Long Term Government on October 23, 2024 and sell it today you would lose (76.00) from holding Pimco Long Term Government or give up 5.29% of portfolio value over 90 days.

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

Vanguard Long Term Treasury  vs.  Pimco Long Term Government

Vanguard Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pimco Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Long-term and Pimco Long-term

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

The idea behind Vanguard Long Term Treasury and Pimco Long Term Government 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.