Correlation Between PIMCO RAFI and SPDR SSGA

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

Diversification Opportunities for PIMCO RAFI and SPDR SSGA

0.86

Correlation Coefficient

PIMCO RAFI  SPDR SSGA

Very poor diversification

The 3 months correlation between PIMCO and SPDR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and SPDR SSGA Gender in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA Gender 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 SPDR SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA Gender has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and SPDR SSGA go up and down completely randomly.

Pair Corralation between PIMCO RAFI and SPDR SSGA

Given the investment horizon of 90 days PIMCO RAFI is expected to generate 1.25 times less return on investment than SPDR SSGA. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.04 times less risky than SPDR SSGA. It trades about 0.09 of its potential returns per unit of risk. SPDR SSGA Gender is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,153  in SPDR SSGA Gender on October 26, 2024 and sell it today you would earn a total of  3,850  from holding SPDR SSGA Gender or generate 47.22% return on investment over 90 days.

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

PIMCO RAFI Dynamic  vs.  SPDR SSGA Gender

PIMCO RAFI Dynamic

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 5 (%) 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.

SPDR SSGA Gender

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSGA Gender are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, SPDR SSGA is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PIMCO RAFI and SPDR SSGA

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

The idea behind PIMCO RAFI Dynamic and SPDR SSGA Gender 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.