Correlation Between PIMCO Mortgage and IShares Equity

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

By analyzing existing cross correlation between PIMCO Mortgage Backed Securities and iShares Equity Factor, you can compare the effects of market volatilities on PIMCO Mortgage and IShares Equity 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 Mortgage with a short position of IShares Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO Mortgage and IShares Equity.

Diversification Opportunities for PIMCO Mortgage and IShares Equity

-0.32

Correlation Coefficient

PIMCO Mortgage  IShares Equity

Very good diversification

The 3 months correlation between PIMCO and IShares is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO Mortgage Backed Securiti and iShares Equity Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Equity Factor and PIMCO Mortgage 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 Mortgage Backed Securities are associated (or correlated) with IShares Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Equity Factor has no effect on the direction of PIMCO Mortgage i.e., PIMCO Mortgage and IShares Equity go up and down completely randomly.

Pair Corralation between PIMCO Mortgage and IShares Equity

Given the investment horizon of 90 days PIMCO Mortgage Backed Securities is expected to generate 0.2 times more return on investment than IShares Equity. However, PIMCO Mortgage Backed Securities is 5.1 times less risky than IShares Equity. It trades about 0.06 of its potential returns per unit of risk. iShares Equity Factor is currently generating about -0.04 per unit of risk. If you would invest  4,764  in PIMCO Mortgage Backed Securities on February 8, 2025 and sell it today you would earn a total of  63.00  from holding PIMCO Mortgage Backed Securities or generate 1.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

PIMCO Mortgage Backed Securiti  vs.  iShares Equity Factor

PIMCO Mortgage Backed

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Mortgage Backed Securities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, PIMCO Mortgage is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Equity Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Equity Factor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PIMCO Mortgage and IShares Equity

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

The idea behind PIMCO Mortgage Backed Securities and iShares Equity Factor 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.