Correlation Between IShares High and PIMCO Investment

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

By analyzing existing cross correlation between iShares High Yield and PIMCO Investment Grade, you can compare the effects of market volatilities on IShares High and PIMCO Investment 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 IShares High with a short position of PIMCO Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares High and PIMCO Investment.

Diversification Opportunities for IShares High and PIMCO Investment

0.09

Correlation Coefficient

IShares High  PIMCO Investment

Significant diversification

The 3 months correlation between IShares and PIMCO is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding iShares High Yield and PIMCO Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Investment Grade and IShares High 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 iShares High Yield are associated (or correlated) with PIMCO Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Investment Grade has no effect on the direction of IShares High i.e., IShares High and PIMCO Investment go up and down completely randomly.

Pair Corralation between IShares High and PIMCO Investment

Assuming the 90 days trading horizon iShares High Yield is expected to generate 0.72 times more return on investment than PIMCO Investment. However, iShares High Yield is 1.39 times less risky than PIMCO Investment. It trades about 0.03 of its potential returns per unit of risk. PIMCO Investment Grade is currently generating about -0.08 per unit of risk. If you would invest  1,656  in iShares High Yield on October 7, 2024 and sell it today you would earn a total of  11.00  from holding iShares High Yield or generate 0.66% return on investment over 90 days.

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

iShares High Yield  vs.  PIMCO Investment Grade

iShares High Yield

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares High Yield are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares High is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

PIMCO Investment Grade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO Investment Grade has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, PIMCO Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares High and PIMCO Investment

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

The idea behind iShares High Yield and PIMCO Investment Grade 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.