Correlation Between Vanguard Short-term and Aqr Long-short
Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term and Aqr Long-short 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 Short-term and Aqr Long-short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Short Term Federal and Aqr Long Short Equity, you can compare the effects of market volatilities on Vanguard Short-term and Aqr Long-short 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 Short-term with a short position of Aqr Long-short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Aqr Long-short.
Diversification Opportunities for Vanguard Short-term and Aqr Long-short
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Vanguard and Aqr is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Federal and Aqr Long Short Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Long Short and Vanguard Short-term 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 Short Term Federal are associated (or correlated) with Aqr Long-short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Long Short has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and Aqr Long-short go up and down completely randomly.
Pair Corralation between Vanguard Short-term and Aqr Long-short
Assuming the 90 days horizon Vanguard Short-term is expected to generate 22.0 times less return on investment than Aqr Long-short. But when comparing it to its historical volatility, Vanguard Short Term Federal is 3.31 times less risky than Aqr Long-short. It trades about 0.07 of its potential returns per unit of risk. Aqr Long Short Equity is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest 1,569 in Aqr Long Short Equity on September 1, 2024 and sell it today you would earn a total of 70.00 from holding Aqr Long Short Equity or generate 4.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Short Term Federal vs. Aqr Long Short Equity
Performance |
| Timeline |
| Vanguard Short Term |
| Aqr Long Short |
Vanguard Short-term and Aqr Long-short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Short-term and Aqr Long-short
The main advantage of trading using opposite Vanguard Short-term and Aqr Long-short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term position performs unexpectedly, Aqr Long-short 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 Long-short will offset losses from the drop in Aqr Long-short's long position.The idea behind Vanguard Short Term Federal and Aqr Long Short Equity 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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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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