Correlation Between Vanguard Total and PIMCO RAFI

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

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

Diversification Opportunities for Vanguard Total and PIMCO RAFI

0.88

Correlation Coefficient

Vanguard Total  PIMCO RAFI

Very poor diversification

The 3 months correlation between Vanguard and PIMCO is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond 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 Vanguard Total 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 Vanguard Total Bond 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 Vanguard Total i.e., Vanguard Total and PIMCO RAFI go up and down completely randomly.

Pair Corralation between Vanguard Total and PIMCO RAFI

Considering the 90-day investment horizon Vanguard Total Bond is expected to generate 0.39 times more return on investment than PIMCO RAFI. However, Vanguard Total Bond is 2.53 times less risky than PIMCO RAFI. It trades about 0.03 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.0 per unit of risk. If you would invest  7,125  in Vanguard Total Bond on September 22, 2024 and sell it today you would earn a total of  96.00  from holding Vanguard Total Bond or generate 1.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Vanguard Total Bond  vs.  PIMCO RAFI Dynamic

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO RAFI Dynamic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Vanguard Total and PIMCO RAFI

The main advantage of trading using opposite Vanguard Total and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Vanguard Total Bond 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.