Correlation Between Vanguard Extended and PIMCO 25

Can any of the company-specific risk be diversified away by investing in both Vanguard Extended and PIMCO 25 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 Extended and PIMCO 25 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Extended Duration and PIMCO 25 Year, you can compare the effects of market volatilities on Vanguard Extended and PIMCO 25 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 Extended with a short position of PIMCO 25. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and PIMCO 25.

Diversification Opportunities for Vanguard Extended and PIMCO 25

1.0

Correlation Coefficient

Vanguard Extended  PIMCO 25

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 Extended Duration and PIMCO 25 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO 25 Year and Vanguard Extended 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 Extended Duration are associated (or correlated) with PIMCO 25. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO 25 Year has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and PIMCO 25 go up and down completely randomly.

Pair Corralation between Vanguard Extended and PIMCO 25

Considering the 90-day investment horizon Vanguard Extended Duration is expected to generate 0.87 times more return on investment than PIMCO 25. However, Vanguard Extended Duration is 1.15 times less risky than PIMCO 25. It trades about -0.05 of its potential returns per unit of risk. PIMCO 25 Year is currently generating about -0.05 per unit of risk. If you would invest  7,875  in Vanguard Extended Duration on September 2, 2024 and sell it today you would lose (364.00) from holding Vanguard Extended Duration or give up 4.62% of portfolio value over 90 days.

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

Vanguard Extended Duration  vs.  PIMCO 25 Year

Vanguard Extended

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Extended Duration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Vanguard Extended is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

PIMCO 25 Year

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO 25 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, PIMCO 25 is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Extended and PIMCO 25

The main advantage of trading using opposite Vanguard Extended and PIMCO 25 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Extended position performs unexpectedly, PIMCO 25 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 25 will offset losses from the drop in PIMCO 25's long position.

The idea behind Vanguard Extended Duration and PIMCO 25 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.

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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.