Correlation Between PIMCO RAFI and IShares Europe
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and IShares Europe 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 Europe 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 Europe ETF, you can compare the effects of market volatilities on PIMCO RAFI and IShares Europe 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 Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and IShares Europe.
Diversification Opportunities for PIMCO RAFI and IShares Europe
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between PIMCO and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and iShares Europe ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Europe ETF 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 Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Europe ETF has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and IShares Europe go up and down completely randomly.
Pair Corralation between PIMCO RAFI and IShares Europe
Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 1.0 times more return on investment than IShares Europe. However, PIMCO RAFI is 1.0 times more volatile than iShares Europe ETF. It trades about -0.05 of its potential returns per unit of risk. iShares Europe ETF is currently generating about -0.08 per unit of risk. If you would invest 1,934 in PIMCO RAFI Dynamic on January 26, 2024 and sell it today you would lose (15.30) from holding PIMCO RAFI Dynamic or give up 0.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. iShares Europe ETF
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| iShares Europe ETF |
PIMCO RAFI and IShares Europe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and IShares Europe
The main advantage of trading using opposite PIMCO RAFI and IShares Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, IShares Europe 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 Europe will offset losses from the drop in IShares Europe's long position.The idea behind PIMCO RAFI Dynamic and iShares Europe ETF 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.| IShares Europe vs. OShares Small Cap Quality | IShares Europe vs. OShares Quality Dividend | IShares Europe vs. OShares Global Internet | IShares Europe vs. Virtus Terranova Quality |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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