Correlation Between IShares Oil and Pimco California

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

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

Diversification Opportunities for IShares Oil and Pimco California

0.21

Correlation Coefficient

IShares Oil  Pimco California

Modest diversification

The 3 months correlation between IShares and Pimco is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding iShares Oil Equipment and Pimco California Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco California Mun and IShares Oil 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 Oil Equipment are associated (or correlated) with Pimco California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco California Mun has no effect on the direction of IShares Oil i.e., IShares Oil and Pimco California go up and down completely randomly.

Pair Corralation between IShares Oil and Pimco California

Considering the 90-day investment horizon IShares Oil is expected to generate 3.54 times less return on investment than Pimco California. In addition to that, IShares Oil is 5.29 times more volatile than Pimco California Municipal. It trades about 0.01 of its total potential returns per unit of risk. Pimco California Municipal is currently generating about 0.28 per unit of volatility. If you would invest  966.00  in Pimco California Municipal on January 26, 2024 and sell it today you would earn a total of  94.00  from holding Pimco California Municipal or generate 9.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.19%
Values	Daily Returns

iShares Oil Equipment  vs.  Pimco California Municipal

iShares Oil Equipment

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Oil Equipment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent technical and fundamental indicators, IShares Oil may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pimco California Mun

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco California Municipal are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pimco California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Oil and Pimco California

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

The idea behind iShares Oil Equipment and Pimco California Municipal 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.