Correlation Between IShares Core and PIMCO RAFI

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

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

Diversification Opportunities for IShares Core and PIMCO RAFI

0.99

Correlation Coefficient

IShares Core  PIMCO RAFI

No risk reduction

The 3 months correlation between IShares and PIMCO is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Dividend 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 IShares Core 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 iShares Core Dividend 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 IShares Core i.e., IShares Core and PIMCO RAFI go up and down completely randomly.

Pair Corralation between IShares Core and PIMCO RAFI

Given the investment horizon of 90 days IShares Core is expected to generate 1.42 times less return on investment than PIMCO RAFI. But when comparing it to its historical volatility, iShares Core Dividend is 1.12 times less risky than PIMCO RAFI. It trades about 0.12 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,861  in PIMCO RAFI Dynamic on September 12, 2024 and sell it today you would earn a total of  294.00  from holding PIMCO RAFI Dynamic or generate 6.05% return on investment over 90 days.

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

iShares Core Dividend  vs.  PIMCO RAFI Dynamic

iShares Core Dividend

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Dividend are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, PIMCO RAFI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Core and PIMCO RAFI

The main advantage of trading using opposite IShares Core and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 iShares Core Dividend 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.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.