Correlation Between VanEck Morningstar and PIMCO RAFI

Can any of the company-specific risk be diversified away by investing in both VanEck Morningstar and PIMCO RAFI 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 VanEck Morningstar and PIMCO RAFI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VanEck Morningstar International and PIMCO RAFI Dynamic, you can compare the effects of market volatilities on VanEck Morningstar and PIMCO RAFI 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 VanEck Morningstar with a short position of PIMCO RAFI. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Morningstar and PIMCO RAFI.

Diversification Opportunities for VanEck Morningstar and PIMCO RAFI

0.94

Correlation Coefficient

VanEck Morningstar  PIMCO RAFI

Almost no diversification

The 3 months correlation between VanEck and PIMCO is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Morningstar Internation and PIMCO RAFI Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO RAFI Dynamic and VanEck Morningstar 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 VanEck Morningstar International are associated (or correlated) with PIMCO RAFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO RAFI Dynamic has no effect on the direction of VanEck Morningstar i.e., VanEck Morningstar and PIMCO RAFI go up and down completely randomly.

Pair Corralation between VanEck Morningstar and PIMCO RAFI

Given the investment horizon of 90 days VanEck Morningstar International is expected to generate 1.34 times more return on investment than PIMCO RAFI. However, VanEck Morningstar is 1.34 times more volatile than PIMCO RAFI Dynamic. It trades about 0.14 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.07 per unit of risk. If you would invest  3,096  in VanEck Morningstar International on December 2, 2024 and sell it today you would earn a total of  245.00  from holding VanEck Morningstar International or generate 7.91% return on investment over 90 days.

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

VanEck Morningstar Internation  vs.  PIMCO RAFI Dynamic

VanEck Morningstar

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Morningstar International are ranked lower than 10 (%) 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.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

Modest

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 fairly strong fundamental indicators, PIMCO RAFI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with VanEck Morningstar and PIMCO RAFI

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

The idea behind VanEck Morningstar International and PIMCO RAFI Dynamic 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.