Correlation Between IShares MSCI and Alpha Architect

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

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

Diversification Opportunities for IShares MSCI and Alpha Architect

0.05

Correlation Coefficient

IShares MSCI  Alpha Architect

Significant diversification

The 3 months correlation between IShares and Alpha is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Intl and Alpha Architect Quantitative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Quan and IShares MSCI 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 iShares MSCI Intl 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 Quan has no effect on the direction of IShares MSCI i.e., IShares MSCI and Alpha Architect go up and down completely randomly.

Pair Corralation between IShares MSCI and Alpha Architect

Given the investment horizon of 90 days IShares MSCI is expected to generate 4.37 times less return on investment than Alpha Architect. In addition to that, IShares MSCI is 1.07 times more volatile than Alpha Architect Quantitative. It trades about 0.01 of its total potential returns per unit of risk. Alpha Architect Quantitative is currently generating about 0.03 per unit of volatility. If you would invest  4,511  in Alpha Architect Quantitative on September 18, 2024 and sell it today you would earn a total of  64.00  from holding Alpha Architect Quantitative or generate 1.42% return on investment over 90 days.

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

iShares MSCI Intl  vs.  Alpha Architect Quantitative

iShares MSCI Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Alpha Architect Quan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Quantitative are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Alpha Architect is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares MSCI and Alpha Architect

The main advantage of trading using opposite IShares MSCI and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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 iShares MSCI Intl and Alpha Architect Quantitative 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.