Correlation Between PIMCO RAFI and Schwab Fundamental

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

Diversification Opportunities for PIMCO RAFI and Schwab Fundamental

0.85

Correlation Coefficient

PIMCO RAFI  Schwab Fundamental

Very poor diversification

The 3 months correlation between PIMCO and Schwab is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Schwab Fundamental Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental Large 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 Schwab Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Fundamental Large has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Schwab Fundamental go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Schwab Fundamental

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 1.17 times more return on investment than Schwab Fundamental. However, PIMCO RAFI is 1.17 times more volatile than Schwab Fundamental Large. It trades about 0.03 of its potential returns per unit of risk. Schwab Fundamental Large is currently generating about -0.23 per unit of risk. 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	Strong
Accuracy	100.0%
Values	Daily Returns

PIMCO RAFI Dynamic  vs.  Schwab Fundamental Large

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.

Schwab Fundamental Large

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Fundamental Large are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Schwab Fundamental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PIMCO RAFI and Schwab Fundamental

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

The idea behind PIMCO RAFI Dynamic and Schwab Fundamental Large 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.