Correlation Between PIMCO 1 and IShares MSCI

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Can any of the company-specific risk be diversified away by investing in both PIMCO 1 and IShares MSCI 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 PIMCO 1 and IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PIMCO 1 5 Year and IShares MSCI Europe, you can compare the effects of market volatilities on PIMCO 1 and IShares MSCI 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 PIMCO 1 with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO 1 and IShares MSCI.

Diversification Opportunities for PIMCO 1 and IShares MSCI

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between PIMCO and IShares is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO 1-5 Year and IShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares MSCI Europe and PIMCO 1 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 PIMCO 1 5 Year are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares MSCI Europe has no effect on the direction of PIMCO 1 i.e., PIMCO 1 and IShares MSCI go up and down completely randomly.

Pair Corralation between PIMCO 1 and IShares MSCI

Given the investment horizon of 90 days PIMCO 1 is expected to generate 5.37 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, PIMCO 1 5 Year is 5.57 times less risky than IShares MSCI. It trades about 0.28 of its potential returns per unit of risk. IShares MSCI Europe is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  5,442  in IShares MSCI Europe on December 30, 2023 and sell it today you would earn a total of  222.00  from holding IShares MSCI Europe or generate 4.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.65%
ValuesDaily Returns

PIMCO 1-5 Year  vs.  IShares MSCI Europe

 Performance 
       Timeline  
PIMCO 1-5 Year 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO 1 5 Year are ranked lower than 6 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.
IShares MSCI Europe 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in IShares MSCI Europe are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

PIMCO 1 and IShares MSCI Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PIMCO 1 and IShares MSCI

The main advantage of trading using opposite PIMCO 1 and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO 1 position performs unexpectedly, IShares MSCI 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 IShares MSCI will offset losses from the drop in IShares MSCI's long position.
The idea behind PIMCO 1 5 Year and IShares MSCI Europe 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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