Correlation Between Aqr Large and Driehaus Micro

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

Diversification Opportunities for Aqr Large and Driehaus Micro

0.65

Correlation Coefficient

Aqr Large  Driehaus Micro

Poor diversification

The 3 months correlation between Aqr and Driehaus is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Large Cap and Driehaus Micro Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Driehaus Micro Cap 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 Driehaus Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Driehaus Micro Cap has no effect on the direction of Aqr Large i.e., Aqr Large and Driehaus Micro go up and down completely randomly.

Pair Corralation between Aqr Large and Driehaus Micro

Assuming the 90 days horizon Aqr Large is expected to generate 1.37 times less return on investment than Driehaus Micro. But when comparing it to its historical volatility, Aqr Large Cap is 1.23 times less risky than Driehaus Micro. It trades about 0.04 of its potential returns per unit of risk. Driehaus Micro Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,063  in Driehaus Micro Cap on October 27, 2024 and sell it today you would earn a total of  363.00  from holding Driehaus Micro Cap or generate 34.15% return on investment over 90 days.

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

Aqr Large Cap  vs.  Driehaus Micro Cap

Aqr Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqr Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Aqr Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Driehaus Micro Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Driehaus Micro Cap are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Driehaus Micro 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 Large and Driehaus Micro

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

The idea behind Aqr Large Cap and Driehaus Micro 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.

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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.