Correlation Between Alpha Architect and IShares Russell

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

By analyzing existing cross correlation between Alpha Architect Quantitative and iShares Russell Mid Cap, you can compare the effects of market volatilities on Alpha Architect and IShares Russell 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 IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Architect and IShares Russell.

Diversification Opportunities for Alpha Architect and IShares Russell

0.95

Correlation Coefficient

Alpha Architect  IShares Russell

Almost no diversification

The 3 months correlation between Alpha and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect Quantitative and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Mid 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 Quantitative are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Mid has no effect on the direction of Alpha Architect i.e., Alpha Architect and IShares Russell go up and down completely randomly.

Pair Corralation between Alpha Architect and IShares Russell

Given the investment horizon of 90 days Alpha Architect Quantitative is expected to under-perform the IShares Russell. In addition to that, Alpha Architect is 1.11 times more volatile than iShares Russell Mid Cap. It trades about -0.08 of its total potential returns per unit of risk. iShares Russell Mid Cap is currently generating about -0.07 per unit of volatility. If you would invest  12,879  in iShares Russell Mid Cap on December 27, 2024 and sell it today you would lose (855.00) from holding iShares Russell Mid Cap or give up 6.64% of portfolio value over 90 days.

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

Alpha Architect Quantitative  vs.  iShares Russell Mid Cap

Alpha Architect Quan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alpha Architect Quantitative has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

iShares Russell Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with Alpha Architect and IShares Russell

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

The idea behind Alpha Architect Quantitative and iShares Russell Mid Cap 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .