Correlation Between PIMCO RAFI and VanEck Morningstar

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

Diversification Opportunities for PIMCO RAFI and VanEck Morningstar

0.24

Correlation Coefficient

PIMCO RAFI  VanEck Morningstar

Modest diversification

The 3 months correlation between PIMCO and VanEck is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and VanEck Morningstar Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Morningstar 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Morningstar has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and VanEck Morningstar go up and down completely randomly.

Pair Corralation between PIMCO RAFI and VanEck Morningstar

Given the investment horizon of 90 days PIMCO RAFI is expected to generate 11.21 times less return on investment than VanEck Morningstar. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.31 times less risky than VanEck Morningstar. It trades about 0.02 of its potential returns per unit of risk. VanEck Morningstar International is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,054  in VanEck Morningstar International on December 27, 2024 and sell it today you would earn a total of  341.00  from holding VanEck Morningstar International or generate 11.17% return on investment over 90 days.

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

PIMCO RAFI Dynamic  vs.  VanEck Morningstar Internation

PIMCO RAFI Dynamic

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Morningstar

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Morningstar International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, VanEck Morningstar may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PIMCO RAFI and VanEck Morningstar

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

The idea behind PIMCO RAFI Dynamic and VanEck Morningstar International 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.