Correlation Between Consumer Staples and PIMCO RAFI
Can any of the company-specific risk be diversified away by investing in both Consumer Staples 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 Consumer Staples and PIMCO RAFI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Staples Select and PIMCO RAFI Dynamic, you can compare the effects of market volatilities on Consumer Staples 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 Consumer Staples with a short position of PIMCO RAFI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Staples and PIMCO RAFI.
Diversification Opportunities for Consumer Staples and PIMCO RAFI
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Consumer and PIMCO is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Select 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 Consumer Staples 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 Consumer Staples Select 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 Consumer Staples i.e., Consumer Staples and PIMCO RAFI go up and down completely randomly.
Pair Corralation between Consumer Staples and PIMCO RAFI
Considering the 90-day investment horizon Consumer Staples is expected to generate 1.87 times less return on investment than PIMCO RAFI. But when comparing it to its historical volatility, Consumer Staples Select is 1.07 times less risky than PIMCO RAFI. It trades about 0.01 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,760 in PIMCO RAFI Dynamic on January 25, 2024 and sell it today you would earn a total of 154.00 from holding PIMCO RAFI Dynamic or generate 8.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Consumer Staples Select vs. PIMCO RAFI Dynamic
Performance |
| Timeline |
| Consumer Staples Select |
| PIMCO RAFI Dynamic |
Consumer Staples and PIMCO RAFI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Staples and PIMCO RAFI
The main advantage of trading using opposite Consumer Staples and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Staples 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.| Consumer Staples vs. Vanguard Consumer Discretionary | Consumer Staples vs. Vanguard Utilities Index | Consumer Staples vs. Vanguard Industrials Index | Consumer Staples vs. Vanguard Materials Index |
| PIMCO RAFI vs. Pfizer Inc | PIMCO RAFI vs. LSI Industries | PIMCO RAFI vs. Retirement Living Through | PIMCO RAFI vs. HP Inc |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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