Correlation Between Sierra E and Aqr Small

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

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

Diversification Opportunities for Sierra E and Aqr Small

0.64

Correlation Coefficient

Sierra E  Aqr Small

Poor diversification

The 3 months correlation between Sierra and Aqr is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement and Aqr Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Small Cap and Sierra E 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 Sierra E Retirement are associated (or correlated) with Aqr Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Small Cap has no effect on the direction of Sierra E i.e., Sierra E and Aqr Small go up and down completely randomly.

Pair Corralation between Sierra E and Aqr Small

Assuming the 90 days horizon Sierra E Retirement is expected to generate 0.27 times more return on investment than Aqr Small. However, Sierra E Retirement is 3.72 times less risky than Aqr Small. It trades about -0.06 of its potential returns per unit of risk. Aqr Small Cap is currently generating about -0.09 per unit of risk. If you would invest  2,266  in Sierra E Retirement on December 20, 2024 and sell it today you would lose (35.00) from holding Sierra E Retirement or give up 1.54% of portfolio value over 90 days.

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

Sierra E Retirement  vs.  Aqr Small Cap

Sierra E Retirement

Risk-Adjusted Performance

Very Weak

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

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Sierra E and Aqr Small

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

The idea behind Sierra E Retirement and Aqr Small Cap 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.