Correlation Between PIMCO RAFI and SPDR SP
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and SPDR SP 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 SPDR SP 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 SPDR SP 500, you can compare the effects of market volatilities on PIMCO RAFI and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and SPDR SP.
Diversification Opportunities for PIMCO RAFI and SPDR SP
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between PIMCO and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and SPDR SP go up and down completely randomly.
Pair Corralation between PIMCO RAFI and SPDR SP
Given the investment horizon of 90 days PIMCO RAFI is expected to generate 13.6 times less return on investment than SPDR SP. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.03 times less risky than SPDR SP. It trades about 0.0 of its potential returns per unit of risk. SPDR SP 500 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 50,442 in SPDR SP 500 on January 26, 2024 and sell it today you would earn a total of 99.00 from holding SPDR SP 500 or generate 0.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 97.67% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. SPDR SP 500
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| SPDR SP 500 |
PIMCO RAFI and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and SPDR SP
The main advantage of trading using opposite PIMCO RAFI and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind PIMCO RAFI Dynamic and SPDR SP 500 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.| SPDR SP vs. SPDR MSCI EAFE | SPDR SP vs. SPDR MSCI Emerging | SPDR SP vs. SPDR Russell 1000 | SPDR SP vs. SPDR Russell 1000 |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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