Correlation Between Capital World and Aqr Long

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

By analyzing existing cross correlation between Capital World Growth and Aqr Long Short Equity, you can compare the effects of market volatilities on Capital World and Aqr Long 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 Capital World with a short position of Aqr Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Aqr Long.

Diversification Opportunities for Capital World and Aqr Long

0.32

Correlation Coefficient

Capital World  Aqr Long

Weak diversification

The 3 months correlation between Capital and Aqr is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and Aqr Long Short Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Long Short and Capital World 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 Capital World Growth are associated (or correlated) with Aqr Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Long Short has no effect on the direction of Capital World i.e., Capital World and Aqr Long go up and down completely randomly.

Pair Corralation between Capital World and Aqr Long

Assuming the 90 days horizon Capital World Growth is expected to generate 1.46 times more return on investment than Aqr Long. However, Capital World is 1.46 times more volatile than Aqr Long Short Equity. It trades about 0.14 of its potential returns per unit of risk. Aqr Long Short Equity is currently generating about 0.2 per unit of risk. If you would invest  6,482  in Capital World Growth on September 5, 2024 and sell it today you would earn a total of  377.00  from holding Capital World Growth or generate 5.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Capital World Growth  vs.  Aqr Long Short Equity

Capital World Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital World Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Capital World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aqr Long Short

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Long Short Equity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Aqr Long is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital World and Aqr Long

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

The idea behind Capital World Growth and Aqr Long Short Equity 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.