Correlation Between Alpha Architect and SPDR SSgA

Can any of the company-specific risk be diversified away by investing in both Alpha Architect and SPDR SSgA 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 SPDR SSgA 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 SPDR SSgA Income, you can compare the effects of market volatilities on Alpha Architect and SPDR SSgA 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 SPDR SSgA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Architect and SPDR SSgA.

Diversification Opportunities for Alpha Architect and SPDR SSgA

0.31

Correlation Coefficient

Alpha Architect  SPDR SSgA

Weak diversification

The 3 months correlation between Alpha and SPDR is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect Gdsdn and SPDR SSgA Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSgA Income 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 SPDR SSgA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSgA Income has no effect on the direction of Alpha Architect i.e., Alpha Architect and SPDR SSgA go up and down completely randomly.

Pair Corralation between Alpha Architect and SPDR SSgA

Given the investment horizon of 90 days Alpha Architect Gdsdn is expected to generate 2.06 times more return on investment than SPDR SSgA. However, Alpha Architect is 2.06 times more volatile than SPDR SSgA Income. It trades about 0.03 of its potential returns per unit of risk. SPDR SSgA Income is currently generating about -0.01 per unit of risk. If you would invest  3,200  in Alpha Architect Gdsdn on September 13, 2024 and sell it today you would earn a total of  41.00  from holding Alpha Architect Gdsdn or generate 1.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Alpha Architect Gdsdn  vs.  SPDR SSgA Income

Alpha Architect Gdsdn

Risk-Adjusted Performance

2 of 100

OK

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.

SPDR SSgA Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SSgA Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, SPDR SSgA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alpha Architect and SPDR SSgA

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

The idea behind Alpha Architect Gdsdn and SPDR SSgA Income 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.