Correlation Between Alpha Architect and ETF Series

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

Diversification Opportunities for Alpha Architect and ETF Series

0.84

Correlation Coefficient

Alpha Architect  ETF Series

Very poor diversification

The 3 months correlation between Alpha and ETF is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect Gdsdn and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions 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 ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Alpha Architect i.e., Alpha Architect and ETF Series go up and down completely randomly.

Pair Corralation between Alpha Architect and ETF Series

Given the investment horizon of 90 days Alpha Architect is expected to generate 2.06 times less return on investment than ETF Series. But when comparing it to its historical volatility, Alpha Architect Gdsdn is 1.94 times less risky than ETF Series. It trades about 0.34 of its potential returns per unit of risk. ETF Series Solutions is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  2,948  in ETF Series Solutions on September 5, 2024 and sell it today you would earn a total of  184.00  from holding ETF Series Solutions or generate 6.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Alpha Architect Gdsdn  vs.  ETF Series Solutions

Alpha Architect Gdsdn

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Gdsdn are ranked lower than 10 (%) 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.

ETF Series Solutions

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, ETF Series may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alpha Architect and ETF Series

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

The idea behind Alpha Architect Gdsdn and ETF Series Solutions 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.