Correlation Between Aqr Diversified and Diamond Hill

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

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

Diversification Opportunities for Aqr Diversified and Diamond Hill

0.38

Correlation Coefficient

Aqr Diversified  Diamond Hill

Weak diversification

The 3 months correlation between Aqr and Diamond is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Diversified Arbitrage and Diamond Hill Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Small and Aqr Diversified 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 Aqr Diversified Arbitrage are associated (or correlated) with Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Small has no effect on the direction of Aqr Diversified i.e., Aqr Diversified and Diamond Hill go up and down completely randomly.

Pair Corralation between Aqr Diversified and Diamond Hill

Assuming the 90 days horizon Aqr Diversified Arbitrage is expected to generate 0.12 times more return on investment than Diamond Hill. However, Aqr Diversified Arbitrage is 8.01 times less risky than Diamond Hill. It trades about -0.08 of its potential returns per unit of risk. Diamond Hill Small is currently generating about -0.39 per unit of risk. If you would invest  1,218  in Aqr Diversified Arbitrage on October 4, 2024 and sell it today you would lose (7.00) from holding Aqr Diversified Arbitrage or give up 0.57% of portfolio value over 90 days.

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

Aqr Diversified Arbitrage  vs.  Diamond Hill Small

Aqr Diversified Arbitrage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Diamond Hill Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Small 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 fundamental 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 Aqr Diversified and Diamond Hill

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

The idea behind Aqr Diversified Arbitrage and Diamond Hill Small 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.