Correlation Between Aqr Risk and Power Income

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

By analyzing existing cross correlation between Aqr Risk Parity and Power Income Fund, you can compare the effects of market volatilities on Aqr Risk and Power Income 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 Risk with a short position of Power Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqr Risk and Power Income.

Diversification Opportunities for Aqr Risk and Power Income

0.61

Correlation Coefficient

Aqr Risk  Power Income

Poor diversification

The 3 months correlation between Aqr and Power is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Risk Parity and Power Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Income and Aqr Risk 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 Risk Parity are associated (or correlated) with Power Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Income has no effect on the direction of Aqr Risk i.e., Aqr Risk and Power Income go up and down completely randomly.

Pair Corralation between Aqr Risk and Power Income

Assuming the 90 days horizon Aqr Risk Parity is expected to generate 2.48 times more return on investment than Power Income. However, Aqr Risk is 2.48 times more volatile than Power Income Fund. It trades about 0.09 of its potential returns per unit of risk. Power Income Fund is currently generating about 0.07 per unit of risk. If you would invest  1,043  in Aqr Risk Parity on December 18, 2024 and sell it today you would earn a total of  34.00  from holding Aqr Risk Parity or generate 3.26% return on investment over 90 days.

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

Aqr Risk Parity  vs.  Power Income Fund

Aqr Risk Parity

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Risk Parity are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Aqr Risk is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Power Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Power Income Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Power Income 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 Risk and Power Income

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

The idea behind Aqr Risk Parity and Power Income Fund 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.