Correlation Between PIMCO RAFI and Franklin International

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

Diversification Opportunities for PIMCO RAFI and Franklin International

0.78

Correlation Coefficient

PIMCO RAFI  Franklin International

Poor diversification

The 3 months correlation between PIMCO and Franklin is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Franklin International Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin International 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 Franklin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin International has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Franklin International go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Franklin International

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to generate 0.96 times more return on investment than Franklin International. However, PIMCO RAFI Dynamic is 1.04 times less risky than Franklin International. It trades about 0.41 of its potential returns per unit of risk. Franklin International Core is currently generating about 0.3 per unit of risk. If you would invest  1,909  in PIMCO RAFI Dynamic on February 13, 2024 and sell it today you would earn a total of  113.00  from holding PIMCO RAFI Dynamic or generate 5.92% return on investment over 90 days.

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

PIMCO RAFI Dynamic  vs.  Franklin International Core

PIMCO RAFI Dynamic

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PIMCO RAFI Dynamic are ranked lower than 15 (%) 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.

Franklin International

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin International Core are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Franklin International may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with PIMCO RAFI and Franklin International

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

The idea behind PIMCO RAFI Dynamic and Franklin International Core 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.