Correlation Between Microsoft and PIMCO RAFI

Can any of the company-specific risk be diversified away by investing in both Microsoft and PIMCO RAFI 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 Microsoft and PIMCO RAFI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and PIMCO RAFI Dynamic, you can compare the effects of market volatilities on Microsoft and PIMCO RAFI 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 Microsoft with a short position of PIMCO RAFI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and PIMCO RAFI.

Diversification Opportunities for Microsoft and PIMCO RAFI

-0.1

Correlation Coefficient

Microsoft  PIMCO RAFI

Good diversification

The 3 months correlation between Microsoft and PIMCO is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PIMCO RAFI Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO RAFI Dynamic and Microsoft 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 Microsoft are associated (or correlated) with PIMCO RAFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO RAFI Dynamic has no effect on the direction of Microsoft i.e., Microsoft and PIMCO RAFI go up and down completely randomly.

Pair Corralation between Microsoft and PIMCO RAFI

Given the investment horizon of 90 days Microsoft is expected to under-perform the PIMCO RAFI. In addition to that, Microsoft is 1.58 times more volatile than PIMCO RAFI Dynamic. It trades about -0.14 of its total potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.16 per unit of volatility. If you would invest  1,946  in PIMCO RAFI Dynamic on February 5, 2024 and sell it today you would earn a total of  61.00  from holding PIMCO RAFI Dynamic or generate 3.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  PIMCO RAFI Dynamic

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

PIMCO RAFI Dynamic

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, PIMCO RAFI may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Microsoft and PIMCO RAFI

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

The idea behind Microsoft and PIMCO RAFI Dynamic 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.