Correlation Between Discipline Fund and Alpha Architect

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

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

Diversification Opportunities for Discipline Fund and Alpha Architect

0.95

Correlation Coefficient

Discipline Fund  Alpha Architect

Almost no diversification

The 3 months correlation between Discipline and Alpha is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Discipline Fund ETF and Alpha Architect High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect High and Discipline Fund 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 Discipline Fund ETF 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 High has no effect on the direction of Discipline Fund i.e., Discipline Fund and Alpha Architect go up and down completely randomly.

Pair Corralation between Discipline Fund and Alpha Architect

Given the investment horizon of 90 days Discipline Fund ETF is expected to generate 1.44 times more return on investment than Alpha Architect. However, Discipline Fund is 1.44 times more volatile than Alpha Architect High. It trades about 0.12 of its potential returns per unit of risk. Alpha Architect High is currently generating about 0.14 per unit of risk. If you would invest  2,233  in Discipline Fund ETF on December 29, 2024 and sell it today you would earn a total of  58.00  from holding Discipline Fund ETF or generate 2.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Discipline Fund ETF  vs.  Alpha Architect High

Discipline Fund ETF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discipline Fund ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Discipline Fund is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Alpha Architect High

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect High are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Alpha Architect is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Discipline Fund and Alpha Architect

The main advantage of trading using opposite Discipline Fund and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discipline Fund 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 Discipline Fund ETF and Alpha Architect High 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.