Correlation Between Aqr Small and Aqr Style

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

Diversification Opportunities for Aqr Small and Aqr Style

0.88

Correlation Coefficient

Aqr Small  Aqr Style

Very poor diversification

The 3 months correlation between Aqr and Aqr is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Small Cap and Aqr Style Premia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Style Premia 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 Aqr Style. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Style Premia has no effect on the direction of Aqr Small i.e., Aqr Small and Aqr Style go up and down completely randomly.

Pair Corralation between Aqr Small and Aqr Style

Assuming the 90 days horizon Aqr Small is expected to generate 2.13 times less return on investment than Aqr Style. In addition to that, Aqr Small is 1.85 times more volatile than Aqr Style Premia. It trades about 0.02 of its total potential returns per unit of risk. Aqr Style Premia is currently generating about 0.09 per unit of volatility. If you would invest  561.00  in Aqr Style Premia on October 11, 2024 and sell it today you would earn a total of  219.00  from holding Aqr Style Premia or generate 39.04% return on investment over 90 days.

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

Aqr Small Cap  vs.  Aqr Style Premia

Aqr Small Cap

Risk-Adjusted Performance

0 of 100

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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Aqr Style Premia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Style Premia are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Aqr Style 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 Small and Aqr Style

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

The idea behind Aqr Small Cap and Aqr Style Premia 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.