Correlation Between PIMCO RAFI and VanEck LongFlat

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

Diversification Opportunities for PIMCO RAFI and VanEck LongFlat

0.62

Correlation Coefficient

PIMCO RAFI  VanEck LongFlat

Poor diversification

The 3 months correlation between PIMCO and VanEck is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and VanEck LongFlat Trend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck LongFlat Trend 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 VanEck LongFlat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck LongFlat Trend has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and VanEck LongFlat go up and down completely randomly.

Pair Corralation between PIMCO RAFI and VanEck LongFlat

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 0.82 times more return on investment than VanEck LongFlat. However, PIMCO RAFI Dynamic is 1.22 times less risky than VanEck LongFlat. It trades about 0.01 of its potential returns per unit of risk. VanEck LongFlat Trend is currently generating about -0.05 per unit of risk. If you would invest  4,961  in PIMCO RAFI Dynamic on December 28, 2024 and sell it today you would earn a total of  14.00  from holding PIMCO RAFI Dynamic or generate 0.28% 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.  VanEck LongFlat Trend

PIMCO RAFI Dynamic

Risk-Adjusted Performance

Insignificant

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 comparatively stable basic indicators, PIMCO RAFI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

VanEck LongFlat Trend

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck LongFlat Trend has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, VanEck LongFlat is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with PIMCO RAFI and VanEck LongFlat

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

The idea behind PIMCO RAFI Dynamic and VanEck LongFlat Trend 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 CEOs Directory module to screen CEOs from public companies around the world.