Correlation Between PIMCO RAFI and Vanguard Mid
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 Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
PIMCO RAFI Dynamic vs. Vanguard Mid-Cap Index
Performance |
Timeline |
PIMCO RAFI Dynamic |
Vanguard Mid-Cap Index |
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.PIMCO RAFI vs. Freedom Day Dividend | PIMCO RAFI vs. Franklin Templeton ETF | PIMCO RAFI vs. IShares MSCI China | PIMCO RAFI vs. YieldMax DIS Option |
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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