Correlation Between Vanguard Small-cap and Aqr Risk

Can any of the company-specific risk be diversified away by investing in both Vanguard 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 Vanguard 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 Vanguard Small Cap Value and Aqr Risk Parity, you can compare the effects of market volatilities on Vanguard 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 Vanguard Small-cap with a short position of Aqr Risk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Aqr Risk.

Diversification Opportunities for Vanguard Small-cap and Aqr Risk

0.59

Correlation Coefficient

Vanguard Small-cap  Aqr Risk

Very weak diversification

The 3 months correlation between Vanguard and Aqr is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value 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 Vanguard 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 Vanguard Small Cap Value 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 Vanguard Small-cap i.e., Vanguard Small-cap and Aqr Risk go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Aqr Risk

Assuming the 90 days horizon Vanguard Small Cap Value is expected to generate 2.03 times more return on investment than Aqr Risk. However, Vanguard Small-cap is 2.03 times more volatile than Aqr Risk Parity. It trades about 0.04 of its potential returns per unit of risk. Aqr Risk Parity is currently generating about 0.07 per unit of risk. If you would invest  3,863  in Vanguard Small Cap Value on October 11, 2024 and sell it today you would earn a total of  896.00  from holding Vanguard Small Cap Value or generate 23.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Vanguard Small Cap Value  vs.  Aqr Risk Parity

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aqr Risk Parity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqr Risk Parity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Aqr Risk 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 Small-cap and Aqr Risk

The main advantage of trading using opposite Vanguard Small-cap and Aqr Risk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 Vanguard Small Cap Value 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 Channel module to use Commodity Channel Index to analyze current equity momentum.