Correlation Between Arrow Managed and Aqr Small

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

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

Diversification Opportunities for Arrow Managed and Aqr Small

0.79

Correlation Coefficient

Arrow Managed  Aqr Small

Poor diversification

The 3 months correlation between Arrow and Aqr is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Managed Futures 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 Arrow Managed 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 Arrow Managed Futures 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 Arrow Managed i.e., Arrow Managed and Aqr Small go up and down completely randomly.

Pair Corralation between Arrow Managed and Aqr Small

Assuming the 90 days horizon Arrow Managed Futures is expected to generate 1.28 times more return on investment than Aqr Small. However, Arrow Managed is 1.28 times more volatile than Aqr Small Cap. It trades about -0.05 of its potential returns per unit of risk. Aqr Small Cap is currently generating about -0.07 per unit of risk. If you would invest  575.00  in Arrow Managed Futures on December 27, 2024 and sell it today you would lose (30.00) from holding Arrow Managed Futures or give up 5.22% of portfolio value over 90 days.

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

Arrow Managed Futures  vs.  Aqr Small Cap

Arrow Managed Futures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arrow Managed Futures has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Arrow Managed 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

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 fairly strong essential indicators, Aqr Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arrow Managed and Aqr Small

The main advantage of trading using opposite Arrow Managed and Aqr Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow Managed 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 Arrow Managed Futures 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.