Correlation Between Aqr Diversified and Capital World

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

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

Diversification Opportunities for Aqr Diversified and Capital World

0.61

Correlation Coefficient

Aqr Diversified  Capital World

Poor diversification

The 3 months correlation between Aqr and Capital is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Diversified Arbitrage and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond and Aqr Diversified 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 Aqr Diversified Arbitrage are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of Aqr Diversified i.e., Aqr Diversified and Capital World go up and down completely randomly.

Pair Corralation between Aqr Diversified and Capital World

Assuming the 90 days horizon Aqr Diversified Arbitrage is expected to under-perform the Capital World. But the mutual fund apears to be less risky and, when comparing its historical volatility, Aqr Diversified Arbitrage is 1.73 times less risky than Capital World. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Capital World Bond is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,595  in Capital World Bond on September 14, 2024 and sell it today you would earn a total of  19.00  from holding Capital World Bond or generate 1.19% return on investment over 90 days.

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

Aqr Diversified Arbitrage  vs.  Capital World Bond

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.

Capital World Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aqr Diversified and Capital World

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

The idea behind Aqr Diversified Arbitrage and Capital World Bond 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.