Correlation Between PIMCO RAFI and Vanguard Mid

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

Diversification Opportunities for PIMCO RAFI and Vanguard Mid

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 Mid-Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid-Cap Index 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid-Cap Index has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Vanguard Mid go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Vanguard Mid

Given the investment horizon of 90 days PIMCO RAFI is expected to generate 2.29 times less return on investment than Vanguard Mid. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.09 times less risky than Vanguard Mid. It trades about 0.18 of its potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  23,826  in Vanguard Mid Cap Index on December 30, 2023 and sell it today you would earn a total of  1,160  from holding Vanguard Mid Cap Index or generate 4.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

PIMCO RAFI Dynamic  vs.  Vanguard Mid-Cap Index

 Performance 
       Timeline  
PIMCO RAFI Dynamic 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, PIMCO RAFI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.
Vanguard Mid-Cap Index 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Vanguard Mid may actually be approaching a critical reversion point that can send shares even higher in April 2024.

PIMCO RAFI and Vanguard Mid Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PIMCO RAFI and Vanguard Mid

The main advantage of trading using opposite PIMCO RAFI and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, Vanguard Mid 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 Mid will offset losses from the drop in Vanguard Mid's long position.
The idea behind PIMCO RAFI Dynamic and Vanguard Mid Cap Index 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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