Correlation Between PIMCO RAFI and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and Vanguard 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 Vanguard 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 Vanguard FTSE Developed, you can compare the effects of market volatilities on PIMCO RAFI and Vanguard 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 Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and Vanguard FTSE.
Diversification Opportunities for PIMCO RAFI and Vanguard FTSE
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 RAFI Dynamic and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Developed has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Vanguard FTSE go up and down completely randomly.
Pair Corralation between PIMCO RAFI and Vanguard FTSE
Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 1.01 times more return on investment than Vanguard FTSE. However, PIMCO RAFI is 1.01 times more volatile than Vanguard FTSE Developed. It trades about -0.05 of its potential returns per unit of risk. Vanguard FTSE Developed is currently generating about -0.15 per unit of risk. If you would invest 1,934 in PIMCO RAFI Dynamic on January 26, 2024 and sell it today you would lose (15.30) from holding PIMCO RAFI Dynamic or give up 0.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. Vanguard FTSE Developed
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| Vanguard FTSE Developed |
PIMCO RAFI and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and Vanguard FTSE
The main advantage of trading using opposite PIMCO RAFI and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, Vanguard 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.The idea behind PIMCO RAFI Dynamic and Vanguard FTSE Developed 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.| Vanguard FTSE vs. SPDR MSCI Emerging | Vanguard FTSE vs. SPDR MSCI USA | Vanguard FTSE vs. SPDR MSCI World | Vanguard FTSE vs. SPDR SSGA Large |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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