Correlation Between Aqr Small and Basic Materials

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Can any of the company-specific risk be diversified away by investing in both Aqr Small and Basic Materials 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 Aqr Small and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aqr Small Cap and Basic Materials Ultrasector, you can compare the effects of market volatilities on Aqr Small and Basic Materials 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 Aqr Small with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqr Small and Basic Materials.

Diversification Opportunities for Aqr Small and Basic Materials

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Aqr and Basic is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Aqr Small Cap and Basic Materials Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials Ultr and Aqr Small 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 Aqr Small Cap are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials Ultr has no effect on the direction of Aqr Small i.e., Aqr Small and Basic Materials go up and down completely randomly.

Pair Corralation between Aqr Small and Basic Materials

Assuming the 90 days horizon Aqr Small Cap is expected to generate 0.8 times more return on investment than Basic Materials. However, Aqr Small Cap is 1.25 times less risky than Basic Materials. It trades about 0.21 of its potential returns per unit of risk. Basic Materials Ultrasector is currently generating about 0.14 per unit of risk. If you would invest  1,741  in Aqr Small Cap on May 1, 2025 and sell it today you would earn a total of  268.00  from holding Aqr Small Cap or generate 15.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Aqr Small Cap  vs.  Basic Materials Ultrasector

 Performance 
       Timeline  
Aqr Small Cap 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Small Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aqr Small showed solid returns over the last few months and may actually be approaching a breakup point.
Basic Materials Ultr 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Ultrasector are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Basic Materials may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Aqr Small and Basic Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aqr Small and Basic Materials

The main advantage of trading using opposite Aqr Small and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aqr Small position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.
The idea behind Aqr Small Cap and Basic Materials Ultrasector 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.
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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