Correlation Between PIMCO Broad and Schwab TIPS

Can any of the company-specific risk be diversified away by investing in both PIMCO Broad and Schwab TIPS 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 Broad and Schwab TIPS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PIMCO Broad TIPS and Schwab TIPS ETF, you can compare the effects of market volatilities on PIMCO Broad and Schwab TIPS 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 Broad with a short position of Schwab TIPS. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO Broad and Schwab TIPS.

Diversification Opportunities for PIMCO Broad and Schwab TIPS

0.99

Correlation Coefficient

PIMCO Broad  Schwab TIPS

No risk reduction

The 3 months correlation between PIMCO and Schwab is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO Broad TIPS and Schwab TIPS ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab TIPS ETF and PIMCO Broad 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 Broad TIPS are associated (or correlated) with Schwab TIPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab TIPS ETF has no effect on the direction of PIMCO Broad i.e., PIMCO Broad and Schwab TIPS go up and down completely randomly.

Pair Corralation between PIMCO Broad and Schwab TIPS

Given the investment horizon of 90 days PIMCO Broad TIPS is expected to under-perform the Schwab TIPS. In addition to that, PIMCO Broad is 1.07 times more volatile than Schwab TIPS ETF. It trades about -0.23 of its total potential returns per unit of risk. Schwab TIPS ETF is currently generating about -0.24 per unit of volatility. If you would invest  2,652  in Schwab TIPS ETF on August 15, 2024 and sell it today you would lose (38.00) from holding Schwab TIPS ETF or give up 1.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

PIMCO Broad TIPS  vs.  Schwab TIPS ETF

PIMCO Broad TIPS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO Broad TIPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, PIMCO Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab TIPS ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab TIPS ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Schwab TIPS is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with PIMCO Broad and Schwab TIPS

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

The idea behind PIMCO Broad TIPS and Schwab TIPS ETF 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.