Correlation Between NYSE Composite and Pimco Realpath

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

By analyzing existing cross correlation between NYSE Composite and Pimco Realpath Blend, you can compare the effects of market volatilities on NYSE Composite and Pimco Realpath 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 NYSE Composite with a short position of Pimco Realpath. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Pimco Realpath.

Diversification Opportunities for NYSE Composite and Pimco Realpath

0.88

Correlation Coefficient

NYSE Composite  Pimco Realpath

Very poor diversification

The 3 months correlation between NYSE and Pimco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Pimco Realpath Blend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Realpath Blend and NYSE Composite 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 NYSE Composite are associated (or correlated) with Pimco Realpath. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Realpath Blend has no effect on the direction of NYSE Composite i.e., NYSE Composite and Pimco Realpath go up and down completely randomly.

Pair Corralation between NYSE Composite and Pimco Realpath

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Pimco Realpath. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 1.01 times less risky than Pimco Realpath. The index trades about -0.22 of its potential returns per unit of risk. The Pimco Realpath Blend is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  1,593  in Pimco Realpath Blend on January 31, 2024 and sell it today you would lose (28.00) from holding Pimco Realpath Blend or give up 1.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

NYSE Composite  vs.  Pimco Realpath Blend

Pair Trading with NYSE Composite and Pimco Realpath

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

The idea behind NYSE Composite and Pimco Realpath Blend 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 Transaction History module to view history of all your transactions and understand their impact on performance.