Correlation Between Aqr Diversified and International Equity

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

Diversification Opportunities for Aqr Diversified and International Equity

0.82

Correlation Coefficient

Aqr Diversified  International Equity

Very poor diversification

The 3 months correlation between Aqr and International is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Diversified Arbitrage and International Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Aqr Diversified i.e., Aqr Diversified and International Equity go up and down completely randomly.

Pair Corralation between Aqr Diversified and International Equity

Assuming the 90 days horizon Aqr Diversified Arbitrage is expected to generate 0.26 times more return on investment than International Equity. However, Aqr Diversified Arbitrage is 3.8 times less risky than International Equity. It trades about -0.13 of its potential returns per unit of risk. International Equity Index is currently generating about -0.21 per unit of risk. If you would invest  1,234  in Aqr Diversified Arbitrage on October 7, 2024 and sell it today you would lose (23.00) from holding Aqr Diversified Arbitrage or give up 1.86% of portfolio value over 90 days.

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

Aqr Diversified Arbitrage  vs.  International Equity Index

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.

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Aqr Diversified and International Equity

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

The idea behind Aqr Diversified Arbitrage and International Equity Index 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.