Correlation Between Morningstar Defensive and Aqr Global

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

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

Diversification Opportunities for Morningstar Defensive and Aqr Global

-0.47

Correlation Coefficient

Morningstar Defensive  Aqr Global

Very good diversification

The 3 months correlation between Morningstar and Aqr is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and Aqr Global Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Global Equity and Morningstar Defensive 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 Morningstar Defensive Bond are associated (or correlated) with Aqr Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Global Equity has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and Aqr Global go up and down completely randomly.

Pair Corralation between Morningstar Defensive and Aqr Global

Assuming the 90 days horizon Morningstar Defensive Bond is expected to under-perform the Aqr Global. But the mutual fund apears to be less risky and, when comparing its historical volatility, Morningstar Defensive Bond is 4.98 times less risky than Aqr Global. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Aqr Global Equity is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,137  in Aqr Global Equity on September 13, 2024 and sell it today you would earn a total of  103.00  from holding Aqr Global Equity or generate 9.06% return on investment over 90 days.

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

Morningstar Defensive Bond  vs.  Aqr Global Equity

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aqr Global Equity

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Global Equity are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aqr Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morningstar Defensive and Aqr Global

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

The idea behind Morningstar Defensive Bond and Aqr Global Equity 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.