Correlation Between SPDR SSGA and PIMCO RAFI

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

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

Diversification Opportunities for SPDR SSGA and PIMCO RAFI

0.87

Correlation Coefficient

SPDR SSGA  PIMCO RAFI

Very poor diversification

The 3 months correlation between SPDR and PIMCO is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSGA Gender 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 SPDR SSGA 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 SPDR SSGA Gender 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 SPDR SSGA i.e., SPDR SSGA and PIMCO RAFI go up and down completely randomly.

Pair Corralation between SPDR SSGA and PIMCO RAFI

Considering the 90-day investment horizon SPDR SSGA Gender is expected to under-perform the PIMCO RAFI. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SSGA Gender is 1.08 times less risky than PIMCO RAFI. The etf trades about -0.19 of its potential returns per unit of risk. The PIMCO RAFI Dynamic is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  5,131  in PIMCO RAFI Dynamic on October 11, 2024 and sell it today you would lose (140.00) from holding PIMCO RAFI Dynamic or give up 2.73% of portfolio value over 90 days.

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

SPDR SSGA Gender  vs.  PIMCO RAFI Dynamic

SPDR SSGA Gender

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSGA Gender are ranked lower than 1 (%) 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.

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.

Pair Trading with SPDR SSGA and PIMCO RAFI

The main advantage of trading using opposite SPDR SSGA and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SSGA 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 SPDR SSGA Gender 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.