Correlation Between MicroSectors FANG and PIMCO 1

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and PIMCO 1 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 1 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 1 5 Year, you can compare the effects of market volatilities on MicroSectors FANG and PIMCO 1 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 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and PIMCO 1.

Diversification Opportunities for MicroSectors FANG and PIMCO 1

-0.26

Correlation Coefficient

MicroSectors FANG  PIMCO 1

Very good diversification

The 3 months correlation between MicroSectors and PIMCO is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and PIMCO 1 5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO 1 5 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 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO 1 5 has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and PIMCO 1 go up and down completely randomly.

Pair Corralation between MicroSectors FANG and PIMCO 1

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the PIMCO 1. In addition to that, MicroSectors FANG is 31.42 times more volatile than PIMCO 1 5 Year. It trades about -0.03 of its total potential returns per unit of risk. PIMCO 1 5 Year is currently generating about 0.03 per unit of volatility. If you would invest  5,115  in PIMCO 1 5 Year on January 25, 2024 and sell it today you would earn a total of  16.00  from holding PIMCO 1 5 Year or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

MicroSectors FANG Index  vs.  PIMCO 1 5 Year

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

PIMCO 1 5

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO 1 5 Year are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, PIMCO 1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MicroSectors FANG and PIMCO 1

The main advantage of trading using opposite MicroSectors FANG and PIMCO 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, PIMCO 1 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 1 will offset losses from the drop in PIMCO 1's long position.

The idea behind MicroSectors FANG Index and PIMCO 1 5 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.