Correlation Between Alpha Architect and IShares Core

Can any of the company-specific risk be diversified away by investing in both Alpha Architect and IShares Core 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 Alpha Architect and IShares Core into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alpha Architect Gdsdn and iShares Core SP, you can compare the effects of market volatilities on Alpha Architect and IShares Core 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 Alpha Architect with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Architect and IShares Core.

Diversification Opportunities for Alpha Architect and IShares Core

0.92

Correlation Coefficient

Alpha Architect  IShares Core

Almost no diversification

The 3 months correlation between Alpha and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect Gdsdn and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP and Alpha Architect 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 Alpha Architect Gdsdn are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Alpha Architect i.e., Alpha Architect and IShares Core go up and down completely randomly.

Pair Corralation between Alpha Architect and IShares Core

Given the investment horizon of 90 days Alpha Architect Gdsdn is expected to generate 0.79 times more return on investment than IShares Core. However, Alpha Architect Gdsdn is 1.27 times less risky than IShares Core. It trades about -0.22 of its potential returns per unit of risk. iShares Core SP is currently generating about -0.29 per unit of risk. If you would invest  3,099  in Alpha Architect Gdsdn on January 20, 2024 and sell it today you would lose (73.00) from holding Alpha Architect Gdsdn or give up 2.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Alpha Architect Gdsdn  vs.  iShares Core SP

Alpha Architect Gdsdn

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Gdsdn are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Alpha Architect is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

iShares Core SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Alpha Architect and IShares Core

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

The idea behind Alpha Architect Gdsdn and iShares Core SP 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.