Correlation Between PIMCO RAFI and WisdomTree International

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

Diversification Opportunities for PIMCO RAFI and WisdomTree International

0.85

Correlation Coefficient

PIMCO RAFI  WisdomTree International

Very poor diversification

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

Pair Corralation between PIMCO RAFI and WisdomTree International

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the WisdomTree International. In addition to that, PIMCO RAFI is 1.12 times more volatile than WisdomTree International Hedged. It trades about -0.34 of its total potential returns per unit of risk. WisdomTree International Hedged is currently generating about -0.22 per unit of volatility. If you would invest  4,493  in WisdomTree International Hedged on October 6, 2024 and sell it today you would lose (116.00) from holding WisdomTree International Hedged or give up 2.58% of portfolio value over 90 days.

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

PIMCO RAFI Dynamic  vs.  WisdomTree International Hedge

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.

WisdomTree International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree International Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, WisdomTree International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PIMCO RAFI and WisdomTree International

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

The idea behind PIMCO RAFI Dynamic and WisdomTree International Hedged 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.