Correlation Between Aqr Diversified and Government Securities

Can any of the company-specific risk be diversified away by investing in both Aqr Diversified and Government Securities 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 Government Securities 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 Government Securities Fund, you can compare the effects of market volatilities on Aqr Diversified and Government Securities 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 Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqr Diversified and Government Securities.

Diversification Opportunities for Aqr Diversified and Government Securities

0.4

Correlation Coefficient

Aqr Diversified  Government Securities

Very weak diversification

The 3 months correlation between Aqr and Government is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Diversified Arbitrage and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities 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 Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Aqr Diversified i.e., Aqr Diversified and Government Securities go up and down completely randomly.

Pair Corralation between Aqr Diversified and Government Securities

Assuming the 90 days horizon Aqr Diversified Arbitrage is expected to generate 0.59 times more return on investment than Government Securities. However, Aqr Diversified Arbitrage is 1.68 times less risky than Government Securities. It trades about -0.09 of its potential returns per unit of risk. Government Securities Fund is currently generating about -0.15 per unit of risk. If you would invest  1,231  in Aqr Diversified Arbitrage on September 13, 2024 and sell it today you would lose (10.00) from holding Aqr Diversified Arbitrage or give up 0.81% of portfolio value over 90 days.

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

Aqr Diversified Arbitrage  vs.  Government Securities Fund

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.

Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Government Securities Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Government Securities 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 Government Securities

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

The idea behind Aqr Diversified Arbitrage and Government Securities Fund 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.