Correlation Between PIMCO RAFI and Sterling Capital

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

Diversification Opportunities for PIMCO RAFI and Sterling Capital

-0.52

Correlation Coefficient

PIMCO RAFI  Sterling Capital

Excellent diversification

The 3 months correlation between PIMCO and Sterling is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Sterling Capital Focus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Focus 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 Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Focus has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Sterling Capital go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Sterling Capital

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the Sterling Capital. But the etf apears to be less risky and, when comparing its historical volatility, PIMCO RAFI Dynamic is 1.5 times less risky than Sterling Capital. The etf trades about -0.02 of its potential returns per unit of risk. The Sterling Capital Focus is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,762  in Sterling Capital Focus on September 5, 2024 and sell it today you would earn a total of  388.00  from holding Sterling Capital Focus or generate 14.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

PIMCO RAFI Dynamic  vs.  Sterling Capital Focus

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

Sterling Capital Focus

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Capital Focus are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Sterling Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PIMCO RAFI and Sterling Capital

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

The idea behind PIMCO RAFI Dynamic and Sterling Capital Focus 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.