Correlation Between Aqr Diversified and Materials Portfolio

Can any of the company-specific risk be diversified away by investing in both Aqr Diversified and Materials Portfolio 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 Materials Portfolio 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 Materials Portfolio Fidelity, you can compare the effects of market volatilities on Aqr Diversified and Materials Portfolio 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 Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqr Diversified and Materials Portfolio.

Diversification Opportunities for Aqr Diversified and Materials Portfolio

0.73

Correlation Coefficient

Aqr Diversified  Materials Portfolio

Poor diversification

The 3 months correlation between Aqr and Materials is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Diversified Arbitrage and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio 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 Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Aqr Diversified i.e., Aqr Diversified and Materials Portfolio go up and down completely randomly.

Pair Corralation between Aqr Diversified and Materials Portfolio

Assuming the 90 days horizon Aqr Diversified Arbitrage is expected to generate 0.13 times more return on investment than Materials Portfolio. However, Aqr Diversified Arbitrage is 7.85 times less risky than Materials Portfolio. It trades about 0.05 of its potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about -0.03 per unit of risk. If you would invest  1,189  in Aqr Diversified Arbitrage on October 6, 2024 and sell it today you would earn a total of  22.00  from holding Aqr Diversified Arbitrage or generate 1.85% return on investment over 90 days.

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

Aqr Diversified Arbitrage  vs.  Materials Portfolio Fidelity

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.

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity 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 technical and 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 Materials Portfolio

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

The idea behind Aqr Diversified Arbitrage and Materials Portfolio Fidelity 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.