Correlation Between New World and Pimco Rae

Can any of the company-specific risk be diversified away by investing in both New World and Pimco Rae 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 New World and Pimco Rae into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New World Fund and Pimco Rae Fundamental, you can compare the effects of market volatilities on New World and Pimco Rae 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 New World with a short position of Pimco Rae. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Pimco Rae.

Diversification Opportunities for New World and Pimco Rae

0.87

Correlation Coefficient

New World  Pimco Rae

Very poor diversification

The 3 months correlation between New and Pimco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and Pimco Rae Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Rae Fundamental and New World 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 New World Fund are associated (or correlated) with Pimco Rae. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Rae Fundamental has no effect on the direction of New World i.e., New World and Pimco Rae go up and down completely randomly.

Pair Corralation between New World and Pimco Rae

Assuming the 90 days horizon New World Fund is expected to generate 1.1 times more return on investment than Pimco Rae. However, New World is 1.1 times more volatile than Pimco Rae Fundamental. It trades about -0.05 of its potential returns per unit of risk. Pimco Rae Fundamental is currently generating about -0.06 per unit of risk. If you would invest  8,080  in New World Fund on December 2, 2024 and sell it today you would lose (195.00) from holding New World Fund or give up 2.41% of portfolio value over 90 days.

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

New World Fund  vs.  Pimco Rae Fundamental

New World Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days New World Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, New World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pimco Rae Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pimco Rae Fundamental has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Pimco Rae is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New World and Pimco Rae

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

The idea behind New World Fund and Pimco Rae Fundamental 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.