Correlation Between PIMCO RAFI and Invesco FTSE
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and Invesco FTSE 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 Invesco FTSE 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 Invesco FTSE RAFI, you can compare the effects of market volatilities on PIMCO RAFI and Invesco FTSE 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 Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and Invesco FTSE.
Diversification Opportunities for PIMCO RAFI and Invesco FTSE
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between PIMCO and Invesco is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI 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 Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Invesco FTSE go up and down completely randomly.
Pair Corralation between PIMCO RAFI and Invesco FTSE
Given the investment horizon of 90 days PIMCO RAFI is expected to generate 1.43 times less return on investment than Invesco FTSE. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.15 times less risky than Invesco FTSE. It trades about 0.02 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,706 in Invesco FTSE RAFI on January 26, 2024 and sell it today you would earn a total of 243.00 from holding Invesco FTSE RAFI or generate 14.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. Invesco FTSE RAFI
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| Invesco FTSE RAFI |
PIMCO RAFI and Invesco FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and Invesco FTSE
The main advantage of trading using opposite PIMCO RAFI and Invesco FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, Invesco FTSE 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 Invesco FTSE will offset losses from the drop in Invesco FTSE's long position.The idea behind PIMCO RAFI Dynamic and Invesco FTSE RAFI 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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