Correlation Between Pimco International and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both Pimco International and Vanguard Total 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 International and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pimco International Bond and Vanguard Total International, you can compare the effects of market volatilities on Pimco International and Vanguard Total 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 International with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pimco International and Vanguard Total.
Diversification Opportunities for Pimco International and Vanguard Total
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Pimco and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Pimco International Bond and Vanguard Total International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Inter and Pimco International 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 International Bond are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Inter has no effect on the direction of Pimco International i.e., Pimco International and Vanguard Total go up and down completely randomly.
Pair Corralation between Pimco International and Vanguard Total
Assuming the 90 days horizon Pimco International Bond is expected to generate 1.06 times more return on investment than Vanguard Total. However, Pimco International is 1.06 times more volatile than Vanguard Total International. It trades about 0.03 of its potential returns per unit of risk. Vanguard Total International is currently generating about -0.1 per unit of risk. If you would invest 989.00 in Pimco International Bond on October 22, 2024 and sell it today you would earn a total of 1.00 from holding Pimco International Bond or generate 0.1% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Pimco International Bond vs. Vanguard Total International
Performance |
Timeline |
Pimco International Bond |
Vanguard Total Inter |
Pimco International and Vanguard Total Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Pimco International and Vanguard Total
The main advantage of trading using opposite Pimco International and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pimco International position performs unexpectedly, Vanguard Total 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 Vanguard Total will offset losses from the drop in Vanguard Total's long position.The idea behind Pimco International Bond and Vanguard Total International 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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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 the Transaction History module to view history of all your transactions and understand their impact on performance.
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