Correlation Between Small Cap and Pimco Diversified

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

By analyzing existing cross correlation between Small Cap Stock and Pimco Diversified Income, you can compare the effects of market volatilities on Small Cap and Pimco Diversified 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 Small Cap with a short position of Pimco Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Pimco Diversified.

Diversification Opportunities for Small Cap and Pimco Diversified

0.25

Correlation Coefficient

Small Cap  Pimco Diversified

Modest diversification

The 3 months correlation between Small and Pimco is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Pimco Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Diversified Income and Small Cap 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 Small Cap Stock are associated (or correlated) with Pimco Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Diversified Income has no effect on the direction of Small Cap i.e., Small Cap and Pimco Diversified go up and down completely randomly.

Pair Corralation between Small Cap and Pimco Diversified

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Pimco Diversified. In addition to that, Small Cap is 5.11 times more volatile than Pimco Diversified Income. It trades about -0.09 of its total potential returns per unit of risk. Pimco Diversified Income is currently generating about 0.2 per unit of volatility. If you would invest  973.00  in Pimco Diversified Income on September 12, 2024 and sell it today you would earn a total of  8.00  from holding Pimco Diversified Income or generate 0.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Small Cap Stock  vs.  Pimco Diversified Income

Small Cap Stock

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pimco Diversified Income

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Diversified Income are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Pimco Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Pimco Diversified

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

The idea behind Small Cap Stock and Pimco Diversified Income 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.