Correlation Between PIMCO RAFI and IShares MSCI
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and IShares MSCI 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 RAFI and IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PIMCO RAFI Dynamic and iShares MSCI Emerging, you can compare the effects of market volatilities on PIMCO RAFI and IShares MSCI 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 RAFI with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and IShares MSCI.
Diversification Opportunities for PIMCO RAFI and IShares MSCI
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between PIMCO and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and iShares MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Emerging and PIMCO RAFI 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 RAFI Dynamic are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Emerging has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and IShares MSCI go up and down completely randomly.
Pair Corralation between PIMCO RAFI and IShares MSCI
Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, PIMCO RAFI Dynamic is 1.08 times less risky than IShares MSCI. The etf trades about -0.06 of its potential returns per unit of risk. The iShares MSCI Emerging is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 4,089 in iShares MSCI Emerging on January 25, 2024 and sell it today you would lose (28.00) from holding iShares MSCI Emerging or give up 0.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. iShares MSCI Emerging
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| iShares MSCI Emerging |
PIMCO RAFI and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and IShares MSCI
The main advantage of trading using opposite PIMCO RAFI and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, IShares MSCI 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 MSCI will offset losses from the drop in IShares MSCI's long position.The idea behind PIMCO RAFI Dynamic and iShares MSCI Emerging 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.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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