Correlation Between Rational Defensive and Aqr Diversified

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

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

Diversification Opportunities for Rational Defensive and Aqr Diversified

-0.76

Correlation Coefficient

Rational Defensive  Aqr Diversified

Pay attention - limited upside

The 3 months correlation between Rational and Aqr is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Aqr Diversified Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Diversified Arbitrage and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with Aqr Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Diversified Arbitrage has no effect on the direction of Rational Defensive i.e., Rational Defensive and Aqr Diversified go up and down completely randomly.

Pair Corralation between Rational Defensive and Aqr Diversified

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 4.26 times more return on investment than Aqr Diversified. However, Rational Defensive is 4.26 times more volatile than Aqr Diversified Arbitrage. It trades about 0.15 of its potential returns per unit of risk. Aqr Diversified Arbitrage is currently generating about -0.16 per unit of risk. If you would invest  3,756  in Rational Defensive Growth on September 28, 2024 and sell it today you would earn a total of  335.00  from holding Rational Defensive Growth or generate 8.92% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Aqr Diversified Arbitrage

Rational Defensive Growth

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aqr Diversified Arbitrage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqr Diversified Arbitrage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Aqr Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Defensive and Aqr Diversified

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

The idea behind Rational Defensive Growth and Aqr Diversified Arbitrage 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.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.