Correlation Between PIMCO RAFI and FlexShares International

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

Diversification Opportunities for PIMCO RAFI and FlexShares International

0.61

Correlation Coefficient

PIMCO RAFI  FlexShares International

Poor diversification

The 3 months correlation between PIMCO and FlexShares is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and FlexShares International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares 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 FlexShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares International has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and FlexShares International go up and down completely randomly.

Pair Corralation between PIMCO RAFI and FlexShares International

Given the investment horizon of 90 days PIMCO RAFI is expected to generate 12.56 times less return on investment than FlexShares International. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.1 times less risky than FlexShares International. It trades about 0.01 of its potential returns per unit of risk. FlexShares International Quality is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,751  in FlexShares International Quality on December 22, 2024 and sell it today you would earn a total of  202.00  from holding FlexShares International Quality or generate 7.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

PIMCO RAFI Dynamic  vs.  FlexShares International Quali

PIMCO RAFI Dynamic

Risk-Adjusted Performance

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 very healthy technical and fundamental indicators, PIMCO RAFI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

FlexShares International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares International Quality are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, FlexShares International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PIMCO RAFI and FlexShares International

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

The idea behind PIMCO RAFI Dynamic and FlexShares International Quality 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.