Correlation Between SPDR Portfolio and Alpha Architect

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

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

Diversification Opportunities for SPDR Portfolio and Alpha Architect

0.93

Correlation Coefficient

SPDR Portfolio  Alpha Architect

Almost no diversification

The 3 months correlation between SPDR and Alpha is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Europe and Alpha Architect Gdsdn in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Gdsdn and SPDR Portfolio 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 SPDR Portfolio Europe are associated (or correlated) with Alpha Architect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Architect Gdsdn has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Alpha Architect go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Alpha Architect

Given the investment horizon of 90 days SPDR Portfolio Europe is expected to generate 1.74 times more return on investment than Alpha Architect. However, SPDR Portfolio is 1.74 times more volatile than Alpha Architect Gdsdn. It trades about 0.09 of its potential returns per unit of risk. Alpha Architect Gdsdn is currently generating about 0.05 per unit of risk. If you would invest  3,983  in SPDR Portfolio Europe on January 26, 2024 and sell it today you would earn a total of  153.00  from holding SPDR Portfolio Europe or generate 3.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

SPDR Portfolio Europe  vs.  Alpha Architect Gdsdn

SPDR Portfolio Europe

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Europe are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, SPDR Portfolio is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Alpha Architect Gdsdn

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Gdsdn are ranked lower than 3 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Portfolio and Alpha Architect

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

The idea behind SPDR Portfolio Europe and Alpha Architect Gdsdn 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.