Correlation Between PIMCO RAFI and SPDR Portfolio
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and SPDR Portfolio 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 SPDR Portfolio 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 SPDR Portfolio SP, you can compare the effects of market volatilities on PIMCO RAFI and SPDR Portfolio 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 SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and SPDR Portfolio.
Diversification Opportunities for PIMCO RAFI and SPDR Portfolio
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between PIMCO and SPDR is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP 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 SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and SPDR Portfolio go up and down completely randomly.
Pair Corralation between PIMCO RAFI and SPDR Portfolio
Given the investment horizon of 90 days PIMCO RAFI is expected to generate 2.5 times less return on investment than SPDR Portfolio. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.44 times less risky than SPDR Portfolio. It trades about 0.02 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,707 in SPDR Portfolio SP on January 16, 2024 and sell it today you would earn a total of 1,426 from holding SPDR Portfolio SP or generate 24.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. SPDR Portfolio SP
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| SPDR Portfolio SP |
PIMCO RAFI and SPDR Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and SPDR Portfolio
The main advantage of trading using opposite PIMCO RAFI and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, SPDR Portfolio 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 SPDR Portfolio will offset losses from the drop in SPDR Portfolio's long position.| PIMCO RAFI vs. Schwab Fundamental International | PIMCO RAFI vs. Schwab Fundamental International | PIMCO RAFI vs. Schwab Fundamental Small | PIMCO RAFI vs. Schwab Fundamental Large |
| SPDR Portfolio vs. HUMANA INC | SPDR Portfolio vs. Sparta Capital | SPDR Portfolio vs. T Rowe Price | SPDR Portfolio vs. Bondbloxx ETF Trust |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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