Correlation Between PIMCO RAFI and IShares Nasdaq

Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and IShares Nasdaq 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 Nasdaq 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 Nasdaq 100 ex, you can compare the effects of market volatilities on PIMCO RAFI and IShares Nasdaq 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 Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and IShares Nasdaq.

Diversification Opportunities for PIMCO RAFI and IShares Nasdaq

0.32

Correlation Coefficient

PIMCO RAFI  IShares Nasdaq

Weak diversification

The 3 months correlation between PIMCO and IShares is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and iShares Nasdaq 100 ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Nasdaq 100 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 Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Nasdaq 100 has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and IShares Nasdaq go up and down completely randomly.

Pair Corralation between PIMCO RAFI and IShares Nasdaq

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the IShares Nasdaq. But the etf apears to be less risky and, when comparing its historical volatility, PIMCO RAFI Dynamic is 1.36 times less risky than IShares Nasdaq. The etf trades about -0.08 of its potential returns per unit of risk. The iShares Nasdaq 100 ex is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,483  in iShares Nasdaq 100 ex on September 14, 2024 and sell it today you would earn a total of  90.00  from holding iShares Nasdaq 100 ex or generate 3.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	57.14%
Values	Daily Returns

PIMCO RAFI Dynamic  vs.  iShares Nasdaq 100 ex

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 recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Nasdaq 100

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Nasdaq 100 ex are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, IShares Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PIMCO RAFI and IShares Nasdaq

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

The idea behind PIMCO RAFI Dynamic and iShares Nasdaq 100 ex 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.