Correlation Between Small Cap and Aqr International

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

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

Diversification Opportunities for Small Cap and Aqr International

0.58

Correlation Coefficient

Small Cap  Aqr International

Very weak diversification

The 3 months correlation between Small and Aqr is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Aqr International Momentum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr International and Small Cap 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 Small Cap Equity are associated (or correlated) with Aqr International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr International has no effect on the direction of Small Cap i.e., Small Cap and Aqr International go up and down completely randomly.

Pair Corralation between Small Cap and Aqr International

Assuming the 90 days horizon Small Cap Equity is expected to generate 1.01 times more return on investment than Aqr International. However, Small Cap is 1.01 times more volatile than Aqr International Momentum. It trades about 0.03 of its potential returns per unit of risk. Aqr International Momentum is currently generating about 0.01 per unit of risk. If you would invest  1,569  in Small Cap Equity on October 10, 2024 and sell it today you would earn a total of  226.00  from holding Small Cap Equity or generate 14.4% return on investment over 90 days.

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

Small Cap Equity  vs.  Aqr International Momentum

Small Cap Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aqr International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqr International Momentum has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Small Cap and Aqr International

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

The idea behind Small Cap Equity and Aqr International Momentum 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.