Correlation Between Western Asset and Aqr Alternative

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

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

Diversification Opportunities for Western Asset and Aqr Alternative

0.81

Correlation Coefficient

Western Asset  Aqr Alternative

Very poor diversification

The 3 months correlation between Western and Aqr is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Short and Aqr Alternative Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Alternative Risk and Western Asset 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 Western Asset Short are associated (or correlated) with Aqr Alternative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Alternative Risk has no effect on the direction of Western Asset i.e., Western Asset and Aqr Alternative go up and down completely randomly.

Pair Corralation between Western Asset and Aqr Alternative

Assuming the 90 days horizon Western Asset is expected to generate 14.46 times less return on investment than Aqr Alternative. But when comparing it to its historical volatility, Western Asset Short is 5.2 times less risky than Aqr Alternative. It trades about 0.13 of its potential returns per unit of risk. Aqr Alternative Risk is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  1,105  in Aqr Alternative Risk on December 20, 2024 and sell it today you would earn a total of  135.00  from holding Aqr Alternative Risk or generate 12.22% return on investment over 90 days.

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

Western Asset Short  vs.  Aqr Alternative Risk

Western Asset Short

Risk-Adjusted Performance

OK

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

Aqr Alternative Risk

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Alternative Risk are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aqr Alternative may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Western Asset and Aqr Alternative

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

The idea behind Western Asset Short and Aqr Alternative Risk 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.