Correlation Between Aqr Small and Aqr Long

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

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

Diversification Opportunities for Aqr Small and Aqr Long

0.9

Correlation Coefficient

Aqr Small  Aqr Long

Almost no diversification

The 3 months correlation between Aqr and Aqr is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Small Cap 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 Aqr Small 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 Small Cap 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 Aqr Small i.e., Aqr Small and Aqr Long go up and down completely randomly.

Pair Corralation between Aqr Small and Aqr Long

Assuming the 90 days horizon Aqr Small Cap is expected to generate 3.03 times more return on investment than Aqr Long. However, Aqr Small is 3.03 times more volatile than Aqr Long Short Equity. It trades about 0.17 of its potential returns per unit of risk. Aqr Long Short Equity is currently generating about 0.21 per unit of risk. If you would invest  2,174  in Aqr Small Cap on September 3, 2024 and sell it today you would earn a total of  336.00  from holding Aqr Small Cap or generate 15.46% return on investment over 90 days.

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

Aqr Small Cap  vs.  Aqr Long Short Equity

Aqr Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aqr Small showed solid returns over the last few months and may actually be approaching a breakup point.

Aqr Long Short

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Long Short Equity are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward 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 Aqr Small and Aqr Long

The main advantage of trading using opposite Aqr Small and Aqr Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aqr Small 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 Aqr Small Cap 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.