Correlation Between Alpha Architect and Cambria Value

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

Diversification Opportunities for Alpha Architect and Cambria Value

-0.56

Correlation Coefficient

Alpha Architect  Cambria Value

Excellent diversification

The 3 months correlation between Alpha and Cambria is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect International and Cambria Value and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambria Value 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 Cambria Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambria Value has no effect on the direction of Alpha Architect i.e., Alpha Architect and Cambria Value go up and down completely randomly.

Pair Corralation between Alpha Architect and Cambria Value

Given the investment horizon of 90 days Alpha Architect International is expected to generate 0.98 times more return on investment than Cambria Value. However, Alpha Architect International is 1.02 times less risky than Cambria Value. It trades about 0.16 of its potential returns per unit of risk. Cambria Value and is currently generating about -0.01 per unit of risk. If you would invest  2,398  in Alpha Architect International on December 28, 2024 and sell it today you would earn a total of  193.00  from holding Alpha Architect International or generate 8.05% 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.  Cambria Value and

Alpha Architect Inte

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Alpha Architect may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cambria Value

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Alpha Architect and Cambria Value

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

The idea behind Alpha Architect International and Cambria Value and 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.