Correlation Between PIMCO RAFI and Vanguard Mega

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

Diversification Opportunities for PIMCO RAFI and Vanguard Mega

-0.45

Correlation Coefficient

PIMCO RAFI  Vanguard Mega

Very good diversification

The 3 months correlation between PIMCO and Vanguard is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Vanguard Mega Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mega Cap 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 Vanguard Mega. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mega Cap has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Vanguard Mega go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Vanguard Mega

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 0.55 times more return on investment than Vanguard Mega. However, PIMCO RAFI Dynamic is 1.83 times less risky than Vanguard Mega. It trades about 0.21 of its potential returns per unit of risk. Vanguard Mega Cap is currently generating about -0.09 per unit of risk. If you would invest  2,968  in PIMCO RAFI Dynamic on December 26, 2024 and sell it today you would earn a total of  301.00  from holding PIMCO RAFI Dynamic or generate 10.14% return on investment over 90 days.

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

PIMCO RAFI Dynamic  vs.  Vanguard Mega Cap

PIMCO RAFI Dynamic

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, PIMCO RAFI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vanguard Mega Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mega Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with PIMCO RAFI and Vanguard Mega

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

The idea behind PIMCO RAFI Dynamic and Vanguard Mega Cap 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.