Correlation Between Aqr Large and Small Cap

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

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

Diversification Opportunities for Aqr Large and Small Cap

0.93

Correlation Coefficient

Aqr Large  Small Cap

Almost no diversification

The 3 months correlation between Aqr and Small is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Large Cap and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Aqr 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 Aqr Large Cap are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Aqr Large i.e., Aqr Large and Small Cap go up and down completely randomly.

Pair Corralation between Aqr Large and Small Cap

Assuming the 90 days horizon Aqr Large is expected to generate 1.16 times less return on investment than Small Cap. But when comparing it to its historical volatility, Aqr Large Cap is 1.03 times less risky than Small Cap. It trades about 0.07 of its potential returns per unit of risk. Small Cap Value is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  930.00  in Small Cap Value on September 14, 2024 and sell it today you would earn a total of  252.00  from holding Small Cap Value or generate 27.1% return on investment over 90 days.

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

Aqr Large Cap  vs.  Small Cap Value

Aqr Large Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Large 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 Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Small Cap Value

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Aqr Large and Small Cap

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

The idea behind Aqr Large Cap and Small Cap Value 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.