Correlation Between Dow Jones and Aqr Risk-balanced

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

By analyzing existing cross correlation between Dow Jones Industrial and Aqr Risk Balanced Modities, you can compare the effects of market volatilities on Dow Jones and Aqr Risk-balanced 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 Dow Jones with a short position of Aqr Risk-balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Aqr Risk-balanced.

Diversification Opportunities for Dow Jones and Aqr Risk-balanced

-0.06

Correlation Coefficient

Dow Jones  Aqr Risk-balanced

Good diversification

The 3 months correlation between Dow and Aqr is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Aqr Risk Balanced Modities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Risk Balanced and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Aqr Risk-balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Risk Balanced has no effect on the direction of Dow Jones i.e., Dow Jones and Aqr Risk-balanced go up and down completely randomly.

Pair Corralation between Dow Jones and Aqr Risk-balanced

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Aqr Risk-balanced. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.29 times less risky than Aqr Risk-balanced. The index trades about -0.27 of its potential returns per unit of risk. The Aqr Risk Balanced Modities is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  884.00  in Aqr Risk Balanced Modities on October 7, 2024 and sell it today you would lose (11.00) from holding Aqr Risk Balanced Modities or give up 1.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Dow Jones Industrial  vs.  Aqr Risk Balanced Modities

Pair Trading with Dow Jones and Aqr Risk-balanced

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

The idea behind Dow Jones Industrial and Aqr Risk Balanced Modities 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.