Correlation Between State Farm and Aqr Small

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

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

Diversification Opportunities for State Farm and Aqr Small

0.9

Correlation Coefficient

State Farm  Aqr Small

Almost no diversification

The 3 months correlation between State and Aqr is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding State Farm Balanced 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 State Farm 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 State Farm Balanced 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 State Farm i.e., State Farm and Aqr Small go up and down completely randomly.

Pair Corralation between State Farm and Aqr Small

Assuming the 90 days horizon State Farm Balanced is expected to generate 0.72 times more return on investment than Aqr Small. However, State Farm Balanced is 1.39 times less risky than Aqr Small. It trades about -0.24 of its potential returns per unit of risk. Aqr Small Cap is currently generating about -0.28 per unit of risk. If you would invest  9,850  in State Farm Balanced on October 8, 2024 and sell it today you would lose (1,007) from holding State Farm Balanced or give up 10.22% of portfolio value over 90 days.

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

State Farm Balanced  vs.  Aqr Small Cap

State Farm Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Farm Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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 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 State Farm and Aqr Small

The main advantage of trading using opposite State Farm and Aqr Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Farm 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 State Farm Balanced 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.