Correlation Between Aqr Sustainable and Vanguard Developed

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

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

Diversification Opportunities for Aqr Sustainable and Vanguard Developed

0.68

Correlation Coefficient

Aqr Sustainable  Vanguard Developed

Poor diversification

The 3 months correlation between Aqr and VANGUARD is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Sustainable Long Short and Vanguard Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Developed and Aqr Sustainable 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 Sustainable Long Short are associated (or correlated) with Vanguard Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Developed has no effect on the direction of Aqr Sustainable i.e., Aqr Sustainable and Vanguard Developed go up and down completely randomly.

Pair Corralation between Aqr Sustainable and Vanguard Developed

Assuming the 90 days horizon Aqr Sustainable is expected to generate 1.95 times less return on investment than Vanguard Developed. But when comparing it to its historical volatility, Aqr Sustainable Long Short is 1.04 times less risky than Vanguard Developed. It trades about 0.07 of its potential returns per unit of risk. Vanguard Developed Markets is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,541  in Vanguard Developed Markets on December 29, 2024 and sell it today you would earn a total of  110.00  from holding Vanguard Developed Markets or generate 7.14% return on investment over 90 days.

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

Aqr Sustainable Long Short  vs.  Vanguard Developed Markets

Aqr Sustainable Long

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Sustainable Long Short are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Aqr Sustainable is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Developed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Developed Markets are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Developed may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aqr Sustainable and Vanguard Developed

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

The idea behind Aqr Sustainable Long Short and Vanguard Developed Markets 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.