Correlation Between SP 500 and PIMCO ETFS

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Can any of the company-specific risk be diversified away by investing in both SP 500 and PIMCO ETFS 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 SP 500 and PIMCO ETFS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SP 500 SPDR and PIMCO ETFS PUBLIC, you can compare the effects of market volatilities on SP 500 and PIMCO ETFS 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 SP 500 with a short position of PIMCO ETFS. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP 500 and PIMCO ETFS.

Diversification Opportunities for SP 500 and PIMCO ETFS

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between SP 500 and PIMCO is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 SPDR and PIMCO ETFS PUBLIC LIMITED COMP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO ETFS PUBLIC and SP 500 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 SP 500 SPDR are associated (or correlated) with PIMCO ETFS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO ETFS PUBLIC has no effect on the direction of SP 500 i.e., SP 500 and PIMCO ETFS go up and down completely randomly.

Pair Corralation between SP 500 and PIMCO ETFS

If you would invest (100.00)  in PIMCO ETFS PUBLIC on July 5, 2022 and sell it today you would earn a total of  100.00  from holding PIMCO ETFS PUBLIC or generate -100.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

SP 500 SPDR  vs.  PIMCO ETFS PUBLIC LIMITED COMP

 Performance (%) 
       Timeline  
SP 500 SPDR 
SP 500 Performance
0 of 100
Over the last 90 days SP 500 SPDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SP 500 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SP 500 Price Channel

PIMCO ETFS PUBLIC 
PIMCO Performance
0 of 100
Over the last 90 days PIMCO ETFS PUBLIC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady fundamental indicators, PIMCO ETFS is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

SP 500 and PIMCO ETFS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SP 500 and PIMCO ETFS

The main advantage of trading using opposite SP 500 and PIMCO ETFS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, PIMCO ETFS 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 ETFS will offset losses from the drop in PIMCO ETFS's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP 500 as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP 500's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP 500's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP 500 SPDR.
The idea behind SP 500 SPDR and PIMCO ETFS PUBLIC 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against PIMCO ETFS as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. PIMCO ETFS's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, PIMCO ETFS's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to PIMCO ETFS PUBLIC.
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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