Correlation Between Aqr Diversified and Nuveen Municipal

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

Diversification Opportunities for Aqr Diversified and Nuveen Municipal

0.24

Correlation Coefficient

Aqr Diversified  Nuveen Municipal

Modest diversification

The 3 months correlation between Aqr and Nuveen is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Diversified Arbitrage and Nuveen Municipal High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Municipal High 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 Nuveen Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Municipal High has no effect on the direction of Aqr Diversified i.e., Aqr Diversified and Nuveen Municipal go up and down completely randomly.

Pair Corralation between Aqr Diversified and Nuveen Municipal

Assuming the 90 days horizon Aqr Diversified Arbitrage is expected to under-perform the Nuveen Municipal. But the mutual fund apears to be less risky and, when comparing its historical volatility, Aqr Diversified Arbitrage is 1.22 times less risky than Nuveen Municipal. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Nuveen Municipal High is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,127  in Nuveen Municipal High on September 20, 2024 and sell it today you would lose (12.00) from holding Nuveen Municipal High or give up 1.06% 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.  Nuveen Municipal High

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.

Nuveen Municipal High

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aqr Diversified and Nuveen Municipal

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

The idea behind Aqr Diversified Arbitrage and Nuveen Municipal High 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.