Correlation Between PIMCO RAFI and JPMorgan Ultra

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

Diversification Opportunities for PIMCO RAFI and JPMorgan Ultra

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between PIMCO and JPMorgan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and JPMorgan Ultra-Short Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan Ultra-Short 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 JPMorgan Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan Ultra-Short has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and JPMorgan Ultra go up and down completely randomly.

Pair Corralation between PIMCO RAFI and JPMorgan Ultra

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 7.29 times more return on investment than JPMorgan Ultra. However, PIMCO RAFI is 7.29 times more volatile than JPMorgan Ultra Short Municipal. It trades about 0.18 of its potential returns per unit of risk. JPMorgan Ultra Short Municipal is currently generating about -0.07 per unit of risk. If you would invest  1,915  in PIMCO RAFI Dynamic on December 30, 2023 and sell it today you would earn a total of  40.00  from holding PIMCO RAFI Dynamic or generate 2.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

PIMCO RAFI Dynamic  vs.  JPMorgan Ultra-Short Municipal

 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 recent stock price disarray, may contribute to short-term losses for the investors.
JPMorgan Ultra-Short 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Ultra Short Municipal are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, JPMorgan Ultra is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

PIMCO RAFI and JPMorgan Ultra Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PIMCO RAFI and JPMorgan Ultra

The main advantage of trading using opposite PIMCO RAFI and JPMorgan Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, JPMorgan Ultra 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 JPMorgan Ultra will offset losses from the drop in JPMorgan Ultra's long position.
The idea behind PIMCO RAFI Dynamic and JPMorgan Ultra Short Municipal 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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