Correlation Between Vanguard Financials and Aqr Equity

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

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

Diversification Opportunities for Vanguard Financials and Aqr Equity

0.9

Correlation Coefficient

Vanguard Financials  Aqr Equity

Almost no diversification

The 3 months correlation between VANGUARD and Aqr is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Aqr Equity Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Equity Market and Vanguard Financials 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 Vanguard Financials Index are associated (or correlated) with Aqr Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Equity Market has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Aqr Equity go up and down completely randomly.

Pair Corralation between Vanguard Financials and Aqr Equity

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 2.2 times more return on investment than Aqr Equity. However, Vanguard Financials is 2.2 times more volatile than Aqr Equity Market. It trades about 0.15 of its potential returns per unit of risk. Aqr Equity Market is currently generating about 0.22 per unit of risk. If you would invest  3,899  in Vanguard Financials Index on August 31, 2024 and sell it today you would earn a total of  2,418  from holding Vanguard Financials Index or generate 62.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.73%
Values	Daily Returns

Vanguard Financials Index  vs.  Aqr Equity Market

Vanguard Financials Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials showed solid returns over the last few months and may actually be approaching a breakup point.

Aqr Equity Market

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Vanguard Financials and Aqr Equity

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

The idea behind Vanguard Financials Index and Aqr Equity Market 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.