Correlation Between LeaderSharesTM AlphaFactor and Alpha Architect

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

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

Diversification Opportunities for LeaderSharesTM AlphaFactor and Alpha Architect

0.89

Correlation Coefficient

LeaderSharesTM AlphaFactor  Alpha Architect

Very poor diversification

The 3 months correlation between LeaderSharesTM and Alpha is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding LeaderSharesTM AlphaFactor Cor and Alpha Architect Gdsdn in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Gdsdn and LeaderSharesTM AlphaFactor 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 LeaderSharesTM AlphaFactor Core 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 Gdsdn has no effect on the direction of LeaderSharesTM AlphaFactor i.e., LeaderSharesTM AlphaFactor and Alpha Architect go up and down completely randomly.

Pair Corralation between LeaderSharesTM AlphaFactor and Alpha Architect

Given the investment horizon of 90 days LeaderSharesTM AlphaFactor Core is expected to generate 1.42 times more return on investment than Alpha Architect. However, LeaderSharesTM AlphaFactor is 1.42 times more volatile than Alpha Architect Gdsdn. It trades about 0.22 of its potential returns per unit of risk. Alpha Architect Gdsdn is currently generating about 0.13 per unit of risk. If you would invest  3,927  in LeaderSharesTM AlphaFactor Core on September 3, 2024 and sell it today you would earn a total of  492.00  from holding LeaderSharesTM AlphaFactor Core or generate 12.53% return on investment over 90 days.

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

LeaderSharesTM AlphaFactor Cor  vs.  Alpha Architect Gdsdn

LeaderSharesTM AlphaFactor

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LeaderSharesTM AlphaFactor Core are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, LeaderSharesTM AlphaFactor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with LeaderSharesTM AlphaFactor and Alpha Architect

The main advantage of trading using opposite LeaderSharesTM AlphaFactor and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LeaderSharesTM AlphaFactor 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 LeaderSharesTM AlphaFactor Core and Alpha Architect Gdsdn 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.