Correlation Between Aqr Small and Small Company

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

By analyzing existing cross correlation between Aqr Small Cap and Small Pany Growth, you can compare the effects of market volatilities on Aqr Small and Small Company 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 Small with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqr Small and Small Company.

Diversification Opportunities for Aqr Small and Small Company

0.53

Correlation Coefficient

Aqr Small  Small Company

Very weak diversification

The 3 months correlation between Aqr and Small is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Small Cap and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth and Aqr Small 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 Small Cap are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Aqr Small i.e., Aqr Small and Small Company go up and down completely randomly.

Pair Corralation between Aqr Small and Small Company

Assuming the 90 days horizon Aqr Small is expected to generate 3.27 times less return on investment than Small Company. But when comparing it to its historical volatility, Aqr Small Cap is 1.43 times less risky than Small Company. It trades about 0.03 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  899.00  in Small Pany Growth on December 4, 2024 and sell it today you would earn a total of  553.00  from holding Small Pany Growth or generate 61.51% return on investment over 90 days.

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

Aqr Small Cap  vs.  Small Pany Growth

Aqr Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aqr Small Cap 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Small Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Growth 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Aqr Small and Small Company

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

The idea behind Aqr Small Cap and Small Pany Growth 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.