Correlation Between PIMCO RAFI and Citigroup

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

Diversification Opportunities for PIMCO RAFI and Citigroup

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between PIMCO and Citigroup is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Citigroup go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Citigroup

Given the investment horizon of 90 days PIMCO RAFI is expected to generate 6.67 times less return on investment than Citigroup. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.66 times less risky than Citigroup. It trades about 0.18 of its potential returns per unit of risk. Citigroup is currently generating about 0.71 of returns per unit of risk over similar time horizon. If you would invest  5,505  in Citigroup on December 30, 2023 and sell it today you would earn a total of  819.00  from holding Citigroup or generate 14.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

PIMCO RAFI Dynamic  vs.  Citigroup

 Performance 
       Timeline  
PIMCO RAFI Dynamic 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 5 (%) 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.
Citigroup 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

PIMCO RAFI and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PIMCO RAFI and Citigroup

The main advantage of trading using opposite PIMCO RAFI and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, Citigroup 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 Citigroup will offset losses from the drop in Citigroup's long position.
The idea behind PIMCO RAFI Dynamic and Citigroup 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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