Correlation Between PIMCO Mortgage and MicroSectors Solactive

Can any of the company-specific risk be diversified away by investing in both PIMCO Mortgage and MicroSectors Solactive 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 MicroSectors Solactive 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 MicroSectors Solactive FANG, you can compare the effects of market volatilities on PIMCO Mortgage and MicroSectors Solactive 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 MicroSectors Solactive. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO Mortgage and MicroSectors Solactive.

Diversification Opportunities for PIMCO Mortgage and MicroSectors Solactive

0.88

Correlation Coefficient

PIMCO Mortgage  MicroSectors Solactive

Very poor diversification

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

Pair Corralation between PIMCO Mortgage and MicroSectors Solactive

Given the investment horizon of 90 days PIMCO Mortgage is expected to generate 13.58 times less return on investment than MicroSectors Solactive. But when comparing it to its historical volatility, PIMCO Mortgage Backed Securities is 10.47 times less risky than MicroSectors Solactive. It trades about 0.16 of its potential returns per unit of risk. MicroSectors Solactive FANG is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  14,026  in MicroSectors Solactive FANG on May 20, 2025 and sell it today you would earn a total of  6,560  from holding MicroSectors Solactive FANG or generate 46.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

PIMCO Mortgage Backed Securiti  vs.  MicroSectors Solactive FANG

PIMCO Mortgage Backed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO Mortgage Backed Securities are ranked lower than 12 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

MicroSectors Solactive

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Solactive FANG are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, MicroSectors Solactive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PIMCO Mortgage and MicroSectors Solactive

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

The idea behind PIMCO Mortgage Backed Securities and MicroSectors Solactive FANG 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.