Correlation Between Dow 2x and Aqr International

Can any of the company-specific risk be diversified away by investing in both Dow 2x and Aqr International 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 Dow 2x and Aqr International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dow 2x Strategy and Aqr International Defensive, you can compare the effects of market volatilities on Dow 2x and Aqr International 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 Dow 2x with a short position of Aqr International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow 2x and Aqr International.

Diversification Opportunities for Dow 2x and Aqr International

0.27

Correlation Coefficient

Dow 2x  Aqr International

Modest diversification

The 3 months correlation between Dow and Aqr is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Dow 2x Strategy and Aqr International Defensive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr International and Dow 2x 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 Dow 2x Strategy are associated (or correlated) with Aqr International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr International has no effect on the direction of Dow 2x i.e., Dow 2x and Aqr International go up and down completely randomly.

Pair Corralation between Dow 2x and Aqr International

Assuming the 90 days horizon Dow 2x Strategy is expected to generate 2.17 times more return on investment than Aqr International. However, Dow 2x is 2.17 times more volatile than Aqr International Defensive. It trades about 0.06 of its potential returns per unit of risk. Aqr International Defensive is currently generating about 0.03 per unit of risk. If you would invest  11,739  in Dow 2x Strategy on October 11, 2024 and sell it today you would earn a total of  5,149  from holding Dow 2x Strategy or generate 43.86% return on investment over 90 days.

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

Dow 2x Strategy  vs.  Aqr International Defensive

Dow 2x Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dow 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dow 2x is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aqr International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dow 2x and Aqr International

The main advantage of trading using opposite Dow 2x and Aqr International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 2x position performs unexpectedly, Aqr International 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 International will offset losses from the drop in Aqr International's long position.

The idea behind Dow 2x Strategy and Aqr International Defensive 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.