Correlation Between All Asset and Aqr Risk
Can any of the company-specific risk be diversified away by investing in both All Asset 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 All Asset and Aqr Risk into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between All Asset Fund and Aqr Risk Parity, you can compare the effects of market volatilities on All Asset 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 All Asset with a short position of Aqr Risk. Check out your portfolio center. Please also check ongoing floating volatility patterns of All Asset and Aqr Risk.
Diversification Opportunities for All Asset and Aqr Risk
Very poor diversification
The 3 months correlation between All and Aqr is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding All Asset Fund 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 All Asset 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 All Asset Fund 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 All Asset i.e., All Asset and Aqr Risk go up and down completely randomly.
Pair Corralation between All Asset and Aqr Risk
Assuming the 90 days horizon All Asset is expected to generate 4.7 times less return on investment than Aqr Risk. But when comparing it to its historical volatility, All Asset Fund is 1.53 times less risky than Aqr Risk. It trades about 0.04 of its potential returns per unit of risk. Aqr Risk Parity is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,044 in Aqr Risk Parity on September 2, 2024 and sell it today you would earn a total of 41.00 from holding Aqr Risk Parity or generate 3.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
All Asset Fund vs. Aqr Risk Parity
Performance |
| Timeline |
| All Asset Fund |
| Aqr Risk Parity |
All Asset and Aqr Risk Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with All Asset and Aqr Risk
The main advantage of trading using opposite All Asset and Aqr Risk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if All Asset 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.| All Asset vs. Fisher Small Cap | All Asset vs. Champlain Small | All Asset vs. Chartwell Small Cap | All Asset vs. Small Pany Growth |
| Aqr Risk vs. Aqr Large Cap | Aqr Risk vs. Aqr Large Cap | Aqr Risk vs. Aqr International Defensive | Aqr Risk vs. Aqr International Defensive |
Check out your portfolio center.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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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