Correlation Between Ab Large and Aqr Small

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

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

Diversification Opportunities for Ab Large and Aqr Small

0.8

Correlation Coefficient

Ab Large  Aqr Small

Very poor diversification

The 3 months correlation between ALCKX and Aqr is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ab Large Cap and Aqr Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Small Cap and Ab Large 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 Ab Large Cap are associated (or correlated) with Aqr Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Small Cap has no effect on the direction of Ab Large i.e., Ab Large and Aqr Small go up and down completely randomly.

Pair Corralation between Ab Large and Aqr Small

Assuming the 90 days horizon Ab Large Cap is expected to generate 0.99 times more return on investment than Aqr Small. However, Ab Large Cap is 1.01 times less risky than Aqr Small. It trades about -0.39 of its potential returns per unit of risk. Aqr Small Cap is currently generating about -0.45 per unit of risk. If you would invest  10,265  in Ab Large Cap on December 11, 2024 and sell it today you would lose (989.00) from holding Ab Large Cap or give up 9.63% of portfolio value over 90 days.

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

Ab Large Cap  vs.  Aqr Small Cap

Ab Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ab Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Aqr Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aqr Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Ab Large and Aqr Small

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

The idea behind Ab Large Cap and Aqr Small Cap 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 Stocks Directory module to find actively traded stocks across global markets.