Correlation Between Capital Group and Alpha Architect

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

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

Diversification Opportunities for Capital Group and Alpha Architect

0.76

Correlation Coefficient

Capital Group  Alpha Architect

Poor diversification

The 3 months correlation between Capital and Alpha is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Capital Group International 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 Capital Group 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 Capital Group International 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 Capital Group i.e., Capital Group and Alpha Architect go up and down completely randomly.

Pair Corralation between Capital Group and Alpha Architect

Given the investment horizon of 90 days Capital Group is expected to generate 2.68 times less return on investment than Alpha Architect. But when comparing it to its historical volatility, Capital Group International is 1.07 times less risky than Alpha Architect. It trades about 0.04 of its potential returns per unit of risk. Alpha Architect International is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,659  in Alpha Architect International on December 29, 2024 and sell it today you would earn a total of  209.00  from holding Alpha Architect International or generate 7.86% return on investment over 90 days.

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

Capital Group International  vs.  Alpha Architect International

Capital Group Intern

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Group International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Capital Group is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private 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 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Alpha Architect may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Capital Group and Alpha Architect

The main advantage of trading using opposite Capital Group and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Group 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 Capital Group International 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.