Correlation Between Schwab Fundamental and PIMCO RAFI

Can any of the company-specific risk be diversified away by investing in both Schwab Fundamental and PIMCO RAFI 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 Schwab Fundamental and PIMCO RAFI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Schwab Fundamental Small and PIMCO RAFI Dynamic, you can compare the effects of market volatilities on Schwab Fundamental and PIMCO RAFI 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 Schwab Fundamental with a short position of PIMCO RAFI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Fundamental and PIMCO RAFI.

Diversification Opportunities for Schwab Fundamental and PIMCO RAFI

0.71

Correlation Coefficient

Schwab Fundamental  PIMCO RAFI

Poor diversification

The 3 months correlation between Schwab and PIMCO is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Fundamental Small and PIMCO RAFI Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO RAFI Dynamic and Schwab Fundamental 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 Schwab Fundamental Small are associated (or correlated) with PIMCO RAFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO RAFI Dynamic has no effect on the direction of Schwab Fundamental i.e., Schwab Fundamental and PIMCO RAFI go up and down completely randomly.

Pair Corralation between Schwab Fundamental and PIMCO RAFI

Given the investment horizon of 90 days Schwab Fundamental Small is expected to under-perform the PIMCO RAFI. In addition to that, Schwab Fundamental is 1.33 times more volatile than PIMCO RAFI Dynamic. It trades about -0.13 of its total potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.03 per unit of volatility. If you would invest  1,936  in PIMCO RAFI Dynamic on January 30, 2024 and sell it today you would earn a total of  9.00  from holding PIMCO RAFI Dynamic or generate 0.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Schwab Fundamental Small  vs.  PIMCO RAFI Dynamic

Schwab Fundamental Small

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Small are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Schwab Fundamental is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 9 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Schwab Fundamental and PIMCO RAFI

The main advantage of trading using opposite Schwab Fundamental and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Fundamental position performs unexpectedly, PIMCO RAFI 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 PIMCO RAFI will offset losses from the drop in PIMCO RAFI's long position.

The idea behind Schwab Fundamental Small and PIMCO RAFI Dynamic 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.