Correlation Between Long-term and Pimco Emerging

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

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

Diversification Opportunities for Long-term and Pimco Emerging

0.81

Correlation Coefficient

Long-term  Pimco Emerging

Very poor diversification

The 3 months correlation between Long-term and Pimco is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Pimco Emerging Local in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Emerging Local and 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 Long Term Government Fund are associated (or correlated) with Pimco Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Emerging Local has no effect on the direction of Long-term i.e., Long-term and Pimco Emerging go up and down completely randomly.

Pair Corralation between Long-term and Pimco Emerging

Assuming the 90 days horizon Long Term Government Fund is expected to under-perform the Pimco Emerging. In addition to that, Long-term is 1.74 times more volatile than Pimco Emerging Local. It trades about -0.07 of its total potential returns per unit of risk. Pimco Emerging Local is currently generating about -0.09 per unit of volatility. If you would invest  582.00  in Pimco Emerging Local on September 4, 2024 and sell it today you would lose (14.00) from holding Pimco Emerging Local or give up 2.41% of portfolio value over 90 days.

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

Long Term Government Fund  vs.  Pimco Emerging Local

Long Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pimco Emerging Local

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Long-term and Pimco Emerging

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

The idea behind Long Term Government Fund and Pimco Emerging Local 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.