Correlation Between Volatility Shares and Alpha Architect

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

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

Diversification Opportunities for Volatility Shares and Alpha Architect

-0.78

Correlation Coefficient

Volatility Shares  Alpha Architect

Pay attention - limited upside

The 3 months correlation between Volatility and Alpha is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and Alpha Architect International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Inte and Volatility Shares 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 Volatility Shares Trust 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 Inte has no effect on the direction of Volatility Shares i.e., Volatility Shares and Alpha Architect go up and down completely randomly.

Pair Corralation between Volatility Shares and Alpha Architect

Given the investment horizon of 90 days Volatility Shares Trust is expected to under-perform the Alpha Architect. In addition to that, Volatility Shares is 7.22 times more volatile than Alpha Architect International. It trades about -0.07 of its total potential returns per unit of risk. Alpha Architect International is currently generating about 0.14 per unit of volatility. If you would invest  2,398  in Alpha Architect International on December 29, 2024 and sell it today you would earn a total of  170.00  from holding Alpha Architect International or generate 7.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Volatility Shares Trust  vs.  Alpha Architect International

Volatility Shares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Volatility Shares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Alpha Architect Inte

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Alpha Architect may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Volatility Shares and Alpha Architect

The main advantage of trading using opposite Volatility Shares and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volatility Shares 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 Volatility Shares Trust and Alpha Architect International 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.