Correlation Between PIMCO RAFI and IShares SP

Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and IShares SP 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 IShares SP 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 iShares SP 500, you can compare the effects of market volatilities on PIMCO RAFI and IShares SP 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 IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and IShares SP.

Diversification Opportunities for PIMCO RAFI and IShares SP

-0.68

Correlation Coefficient

PIMCO RAFI  IShares SP

Excellent diversification

The 3 months correlation between PIMCO and IShares is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and IShares SP go up and down completely randomly.

Pair Corralation between PIMCO RAFI and IShares SP

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the IShares SP. But the etf apears to be less risky and, when comparing its historical volatility, PIMCO RAFI Dynamic is 1.33 times less risky than IShares SP. The etf trades about -0.16 of its potential returns per unit of risk. The iShares SP 500 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,464  in iShares SP 500 on September 20, 2024 and sell it today you would earn a total of  703.00  from holding iShares SP 500 or generate 7.43% return on investment over 90 days.

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

PIMCO RAFI Dynamic  vs.  iShares SP 500

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 latest fragile performance, the Etf's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

iShares SP 500

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PIMCO RAFI and IShares SP

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

The idea behind PIMCO RAFI Dynamic and iShares SP 500 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.