Correlation Between Vanguard FTSE and PIMCO RAFI

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

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

Diversification Opportunities for Vanguard FTSE and PIMCO RAFI

0.91

Correlation Coefficient

Vanguard FTSE  PIMCO RAFI

Almost no diversification

The 3 months correlation between Vanguard and PIMCO is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Emerging 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 Vanguard FTSE 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 Vanguard FTSE Emerging 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 Vanguard FTSE i.e., Vanguard FTSE and PIMCO RAFI go up and down completely randomly.

Pair Corralation between Vanguard FTSE and PIMCO RAFI

Considering the 90-day investment horizon Vanguard FTSE Emerging is expected to generate 1.05 times more return on investment than PIMCO RAFI. However, Vanguard FTSE is 1.05 times more volatile than PIMCO RAFI Dynamic. It trades about 0.08 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.05 per unit of risk. If you would invest  4,433  in Vanguard FTSE Emerging on September 13, 2024 and sell it today you would earn a total of  238.00  from holding Vanguard FTSE Emerging or generate 5.37% return on investment over 90 days.

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

Vanguard FTSE Emerging  vs.  PIMCO RAFI Dynamic

Vanguard FTSE Emerging

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Emerging are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, PIMCO RAFI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard FTSE and PIMCO RAFI

The main advantage of trading using opposite Vanguard FTSE and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE 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 Vanguard FTSE Emerging 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.