Correlation Between PIMCO RAFI and Northern Lights
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and Northern Lights 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 Northern Lights 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 Northern Lights, you can compare the effects of market volatilities on PIMCO RAFI and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and Northern Lights.
Diversification Opportunities for PIMCO RAFI and Northern Lights
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between PIMCO and Northern is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Northern Lights go up and down completely randomly.
Pair Corralation between PIMCO RAFI and Northern Lights
Given the investment horizon of 90 days PIMCO RAFI is expected to generate 2.31 times less return on investment than Northern Lights. But when comparing it to its historical volatility, PIMCO RAFI Dynamic is 1.01 times less risky than Northern Lights. It trades about 0.05 of its potential returns per unit of risk. Northern Lights is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,726 in Northern Lights on September 12, 2024 and sell it today you would earn a total of 873.00 from holding Northern Lights or generate 32.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. Northern Lights
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| Northern Lights |
PIMCO RAFI and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and Northern Lights
The main advantage of trading using opposite PIMCO RAFI and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| PIMCO RAFI vs. PIMCO RAFI Dynamic | PIMCO RAFI vs. PIMCO RAFI Dynamic | PIMCO RAFI vs. JPMorgan Diversified Return | PIMCO RAFI vs. JPMorgan Diversified Return |
| Northern Lights vs. iShares Factors Growth | Northern Lights vs. Absolute Core Strategy | Northern Lights vs. iShares ESG Advanced | Northern Lights vs. PIMCO RAFI Dynamic |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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