Correlation Between PIMCO RAFI and IQ 50

Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and IQ 50 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 IQ 50 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 IQ 50 Percent, you can compare the effects of market volatilities on PIMCO RAFI and IQ 50 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 IQ 50. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and IQ 50.

Diversification Opportunities for PIMCO RAFI and IQ 50

0.95

Correlation Coefficient

PIMCO RAFI  IQ 50

Almost no diversification

The 3 months correlation between PIMCO and HFXI is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and IQ 50 Percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ 50 Percent 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 IQ 50. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ 50 Percent has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and IQ 50 go up and down completely randomly.

Pair Corralation between PIMCO RAFI and IQ 50

Given the investment horizon of 90 days PIMCO RAFI is expected to generate 1.24 times less return on investment than IQ 50. In addition to that, PIMCO RAFI is 1.06 times more volatile than IQ 50 Percent. It trades about 0.04 of its total potential returns per unit of risk. IQ 50 Percent is currently generating about 0.06 per unit of volatility. If you would invest  2,158  in IQ 50 Percent on October 10, 2024 and sell it today you would earn a total of  475.00  from holding IQ 50 Percent or generate 22.01% return on investment over 90 days.

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

PIMCO RAFI Dynamic  vs.  IQ 50 Percent

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 fairly strong fundamental indicators, PIMCO RAFI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

IQ 50 Percent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IQ 50 Percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IQ 50 is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with PIMCO RAFI and IQ 50

The main advantage of trading using opposite PIMCO RAFI and IQ 50 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, IQ 50 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 IQ 50 will offset losses from the drop in IQ 50's long position.

The idea behind PIMCO RAFI Dynamic and IQ 50 Percent 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.