Correlation Between PIMCO RAFI and American Century

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

Diversification Opportunities for PIMCO RAFI and American Century

0.97

Correlation Coefficient

PIMCO RAFI  American Century

Almost no diversification

The 3 months correlation between PIMCO and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and American Century STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century STOXX 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 American Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Century STOXX has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and American Century go up and down completely randomly.

Pair Corralation between PIMCO RAFI and American Century

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 1.17 times more return on investment than American Century. However, PIMCO RAFI is 1.17 times more volatile than American Century STOXX. It trades about -0.26 of its potential returns per unit of risk. American Century STOXX is currently generating about -0.31 per unit of risk. If you would invest  5,229  in PIMCO RAFI Dynamic on October 6, 2024 and sell it today you would lose (224.00) from holding PIMCO RAFI Dynamic or give up 4.28% of portfolio value over 90 days.

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

PIMCO RAFI Dynamic  vs.  American Century STOXX

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 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.

American Century STOXX

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Century STOXX are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, American Century 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 American Century

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

The idea behind PIMCO RAFI Dynamic and American Century STOXX 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.