Correlation Between MicroSectors FANG and PIMCO RAFI

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

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

Diversification Opportunities for MicroSectors FANG and PIMCO RAFI

-0.72

Correlation Coefficient

MicroSectors FANG  PIMCO RAFI

Pay attention - limited upside

The 3 months correlation between MicroSectors and PIMCO is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index 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 MicroSectors FANG 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 MicroSectors FANG Index 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 MicroSectors FANG i.e., MicroSectors FANG and PIMCO RAFI go up and down completely randomly.

Pair Corralation between MicroSectors FANG and PIMCO RAFI

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the PIMCO RAFI. In addition to that, MicroSectors FANG is 7.14 times more volatile than PIMCO RAFI Dynamic. It trades about -0.08 of its total potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.17 per unit of volatility. If you would invest  2,914  in PIMCO RAFI Dynamic on February 18, 2024 and sell it today you would earn a total of  196.00  from holding PIMCO RAFI Dynamic or generate 6.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

MicroSectors FANG Index  vs.  PIMCO RAFI Dynamic

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, PIMCO RAFI may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with MicroSectors FANG and PIMCO RAFI

The main advantage of trading using opposite MicroSectors FANG and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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 MicroSectors FANG Index 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.