Correlation Between Alpha Architect and Global X

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

By analyzing existing cross correlation between Alpha Architect International and Global X NASDAQ, you can compare the effects of market volatilities on Alpha Architect and Global X 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 Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Architect and Global X.

Diversification Opportunities for Alpha Architect and Global X

-0.5

Correlation Coefficient

Alpha Architect  Global X

Very good diversification

The 3 months correlation between Alpha and Global is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect International and Global X NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X NASDAQ 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 International are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X NASDAQ has no effect on the direction of Alpha Architect i.e., Alpha Architect and Global X go up and down completely randomly.

Pair Corralation between Alpha Architect and Global X

Given the investment horizon of 90 days Alpha Architect is expected to generate 2.31 times less return on investment than Global X. In addition to that, Alpha Architect is 1.29 times more volatile than Global X NASDAQ. It trades about 0.04 of its total potential returns per unit of risk. Global X NASDAQ is currently generating about 0.13 per unit of volatility. If you would invest  2,049  in Global X NASDAQ on September 16, 2024 and sell it today you would earn a total of  1,190  from holding Global X NASDAQ or generate 58.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Alpha Architect International  vs.  Global X NASDAQ

Alpha Architect Inte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alpha Architect International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Alpha Architect is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Global X NASDAQ

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X NASDAQ are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alpha Architect and Global X

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

The idea behind Alpha Architect International and Global X NASDAQ 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.