Correlation Between Small Cap and Aqr Risk

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

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

Diversification Opportunities for Small Cap and Aqr Risk

-0.17

Correlation Coefficient

Small Cap  Aqr Risk

Good diversification

The 3 months correlation between Small and Aqr is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Aqr Risk Parity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Risk Parity and Small Cap 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 Small Cap Stock are associated (or correlated) with Aqr Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Risk Parity has no effect on the direction of Small Cap i.e., Small Cap and Aqr Risk go up and down completely randomly.

Pair Corralation between Small Cap and Aqr Risk

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Aqr Risk. In addition to that, Small Cap is 1.67 times more volatile than Aqr Risk Parity. It trades about -0.07 of its total potential returns per unit of risk. Aqr Risk Parity is currently generating about 0.26 per unit of volatility. If you would invest  1,046  in Aqr Risk Parity on December 2, 2024 and sell it today you would earn a total of  66.00  from holding Aqr Risk Parity or generate 6.31% return on investment over 90 days.

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

Small Cap Stock  vs.  Aqr Risk Parity

Small Cap Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Stock 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.

Aqr Risk Parity

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Risk Parity are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Aqr Risk is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Aqr Risk

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

The idea behind Small Cap Stock and Aqr Risk Parity 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 Commodity Directory module to find actively traded commodities issued by global exchanges.