Correlation Between IShares Short and PIMCO Short

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

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

Diversification Opportunities for IShares Short and PIMCO Short

0.9

Correlation Coefficient

IShares Short  PIMCO Short

Almost no diversification

The 3 months correlation between IShares and PIMCO is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Short Term National and PIMCO Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Short Term and IShares Short 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 Short Term National are associated (or correlated) with PIMCO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Short Term has no effect on the direction of IShares Short i.e., IShares Short and PIMCO Short go up and down completely randomly.

Pair Corralation between IShares Short and PIMCO Short

Considering the 90-day investment horizon iShares Short Term National is expected to generate 0.8 times more return on investment than PIMCO Short. However, iShares Short Term National is 1.25 times less risky than PIMCO Short. It trades about 0.07 of its potential returns per unit of risk. PIMCO Short Term is currently generating about 0.05 per unit of risk. If you would invest  10,525  in iShares Short Term National on August 30, 2024 and sell it today you would earn a total of  50.00  from holding iShares Short Term National or generate 0.48% return on investment over 90 days.

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

iShares Short Term National  vs.  PIMCO Short Term

iShares Short Term

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Term National are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PIMCO Short Term

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days PIMCO Short Term has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, PIMCO Short is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Short and PIMCO Short

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

The idea behind iShares Short Term National and PIMCO Short Term 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.