Correlation Between AB Disruptors and PIMCO RAFI

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

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

Diversification Opportunities for AB Disruptors and PIMCO RAFI

0.7

Correlation Coefficient

AB Disruptors  PIMCO RAFI

Poor diversification

The 3 months correlation between FWD and PIMCO is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding AB Disruptors ETF 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 AB Disruptors 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 AB Disruptors ETF 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 AB Disruptors i.e., AB Disruptors and PIMCO RAFI go up and down completely randomly.

Pair Corralation between AB Disruptors and PIMCO RAFI

Considering the 90-day investment horizon AB Disruptors ETF is expected to generate 1.71 times more return on investment than PIMCO RAFI. However, AB Disruptors is 1.71 times more volatile than PIMCO RAFI Dynamic. It trades about 0.1 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.08 per unit of risk. If you would invest  4,913  in AB Disruptors ETF on October 9, 2024 and sell it today you would earn a total of  3,395  from holding AB Disruptors ETF or generate 69.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.65%
Values	Daily Returns

AB Disruptors ETF  vs.  PIMCO RAFI Dynamic

AB Disruptors ETF

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AB Disruptors ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, AB Disruptors may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 comparatively stable basic indicators, PIMCO RAFI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AB Disruptors and PIMCO RAFI

The main advantage of trading using opposite AB Disruptors and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AB Disruptors 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 AB Disruptors ETF 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.