Correlation Between PIMCO RAFI and Formidable ETF

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

Diversification Opportunities for PIMCO RAFI and Formidable ETF

0.93

Correlation Coefficient

PIMCO RAFI  Formidable ETF

Almost no diversification

The 3 months correlation between PIMCO and Formidable is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Formidable ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formidable 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 Formidable ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formidable ETF has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Formidable ETF go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Formidable ETF

Given the investment horizon of 90 days PIMCO RAFI is expected to generate 1.41 times less return on investment than Formidable ETF. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.11 times less risky than Formidable ETF. It trades about 0.23 of its potential returns per unit of risk. Formidable ETF is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,074  in Formidable ETF on April 23, 2025 and sell it today you would earn a total of  273.00  from holding Formidable ETF or generate 13.16% 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.  Formidable ETF

PIMCO RAFI Dynamic

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, PIMCO RAFI may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Formidable ETF

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Formidable ETF are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Formidable ETF demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PIMCO RAFI and Formidable ETF

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

The idea behind PIMCO RAFI Dynamic and Formidable 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.