Correlation Between PIMCO RAFI and Vanguard FTSE

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

Diversification Opportunities for PIMCO RAFI and Vanguard FTSE

0.71

Correlation Coefficient

PIMCO RAFI  Vanguard FTSE

Poor diversification

The 3 months correlation between PIMCO and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Vanguard FTSE Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Emerging 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 FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Emerging has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Vanguard FTSE go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Vanguard FTSE

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the Vanguard FTSE. But the etf apears to be less risky and, when comparing its historical volatility, PIMCO RAFI Dynamic is 1.34 times less risky than Vanguard FTSE. The etf trades about -0.14 of its potential returns per unit of risk. The Vanguard FTSE Emerging is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  4,540  in Vanguard FTSE Emerging on September 22, 2024 and sell it today you would lose (100.00) from holding Vanguard FTSE Emerging or give up 2.2% of portfolio value over 90 days.

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

PIMCO RAFI Dynamic  vs.  Vanguard FTSE Emerging

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 latest unfluctuating performance, the Etf's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Vanguard FTSE Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PIMCO RAFI and Vanguard FTSE

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

The idea behind PIMCO RAFI Dynamic and Vanguard FTSE Emerging 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.