Correlation Between Vanguard Energy and Aqr Diversified

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

By analyzing existing cross correlation between Vanguard Energy Index and Aqr Diversified Arbitrage, you can compare the effects of market volatilities on Vanguard Energy and Aqr Diversified 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 Vanguard Energy with a short position of Aqr Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Energy and Aqr Diversified.

Diversification Opportunities for Vanguard Energy and Aqr Diversified

0.1

Correlation Coefficient

Vanguard Energy  Aqr Diversified

Average diversification

The 3 months correlation between Vanguard and Aqr is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Aqr Diversified Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Diversified Arbitrage and Vanguard Energy 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 Vanguard Energy Index are associated (or correlated) with Aqr Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Diversified Arbitrage has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Aqr Diversified go up and down completely randomly.

Pair Corralation between Vanguard Energy and Aqr Diversified

Assuming the 90 days horizon Vanguard Energy Index is expected to generate 12.18 times more return on investment than Aqr Diversified. However, Vanguard Energy is 12.18 times more volatile than Aqr Diversified Arbitrage. It trades about 0.12 of its potential returns per unit of risk. Aqr Diversified Arbitrage is currently generating about 0.43 per unit of risk. If you would invest  5,918  in Vanguard Energy Index on December 21, 2024 and sell it today you would earn a total of  548.00  from holding Vanguard Energy Index or generate 9.26% return on investment over 90 days.

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

Vanguard Energy Index  vs.  Aqr Diversified Arbitrage

Vanguard Energy Index

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Aqr Diversified Arbitrage

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Diversified Arbitrage are ranked lower than 34 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Aqr Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Energy and Aqr Diversified

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

The idea behind Vanguard Energy Index and Aqr Diversified Arbitrage 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.