Correlation Between Aqr Equity and Vanguard Financials

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

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

Diversification Opportunities for Aqr Equity and Vanguard Financials

0.04

Correlation Coefficient

Aqr Equity  Vanguard Financials

Significant diversification

The 3 months correlation between Aqr and Vanguard is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Equity Market and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index and Aqr Equity 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 Equity Market are associated (or correlated) with Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Aqr Equity i.e., Aqr Equity and Vanguard Financials go up and down completely randomly.

Pair Corralation between Aqr Equity and Vanguard Financials

Assuming the 90 days horizon Aqr Equity Market is expected to generate 0.33 times more return on investment than Vanguard Financials. However, Aqr Equity Market is 3.01 times less risky than Vanguard Financials. It trades about 0.38 of its potential returns per unit of risk. Vanguard Financials Index is currently generating about 0.01 per unit of risk. If you would invest  981.00  in Aqr Equity Market on December 29, 2024 and sell it today you would earn a total of  90.00  from holding Aqr Equity Market or generate 9.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Aqr Equity Market  vs.  Vanguard Financials Index

Aqr Equity Market

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Equity Market are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aqr Equity may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vanguard Financials Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Financials Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Vanguard Financials 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 Equity and Vanguard Financials

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

The idea behind Aqr Equity Market and Vanguard Financials 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.