Correlation Between Qs Moderate and Aqr Small

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

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

Diversification Opportunities for Qs Moderate and Aqr Small

0.8

Correlation Coefficient

Qs Moderate  Aqr Small

Very poor diversification

The 3 months correlation between LLMRX and Aqr is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Qs Moderate Growth and Aqr Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Small Cap and Qs Moderate 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 Qs Moderate Growth are associated (or correlated) with Aqr Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Small Cap has no effect on the direction of Qs Moderate i.e., Qs Moderate and Aqr Small go up and down completely randomly.

Pair Corralation between Qs Moderate and Aqr Small

Assuming the 90 days horizon Qs Moderate Growth is expected to under-perform the Aqr Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Qs Moderate Growth is 1.14 times less risky than Aqr Small. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Aqr Small Cap is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,932  in Aqr Small Cap on October 24, 2024 and sell it today you would earn a total of  72.00  from holding Aqr Small Cap or generate 3.73% return on investment over 90 days.

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

Qs Moderate Growth  vs.  Aqr Small Cap

Qs Moderate Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aqr Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqr Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Qs Moderate and Aqr Small

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

The idea behind Qs Moderate Growth and Aqr Small 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.