Correlation Between MicroSectors FANG and PIMCO Investment

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

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

Diversification Opportunities for MicroSectors FANG and PIMCO Investment

-0.48

Correlation Coefficient

MicroSectors FANG  PIMCO Investment

Very good diversification

The 3 months correlation between MicroSectors and PIMCO is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index 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 MicroSectors FANG 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 MicroSectors FANG Index 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 MicroSectors FANG i.e., MicroSectors FANG and PIMCO Investment go up and down completely randomly.

Pair Corralation between MicroSectors FANG and PIMCO Investment

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 11.73 times more return on investment than PIMCO Investment. However, MicroSectors FANG is 11.73 times more volatile than PIMCO Investment Grade. It trades about 0.19 of its potential returns per unit of risk. PIMCO Investment Grade is currently generating about -0.04 per unit of risk. If you would invest  38,831  in MicroSectors FANG Index on September 12, 2024 and sell it today you would earn a total of  18,917  from holding MicroSectors FANG Index or generate 48.72% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  PIMCO Investment Grade

MicroSectors FANG Index

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. Even with relatively invariable basic indicators, PIMCO Investment is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with MicroSectors FANG and PIMCO Investment

The main advantage of trading using opposite MicroSectors FANG and PIMCO Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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 MicroSectors FANG Index 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..