Correlation Between Alpha Architect and IShares MSCI

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

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

Diversification Opportunities for Alpha Architect and IShares MSCI

-0.13

Correlation Coefficient

Alpha Architect  IShares MSCI

Good diversification

The 3 months correlation between Alpha and IShares is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect Value and iShares MSCI Intl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Intl 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 Value are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Intl has no effect on the direction of Alpha Architect i.e., Alpha Architect and IShares MSCI go up and down completely randomly.

Pair Corralation between Alpha Architect and IShares MSCI

Given the investment horizon of 90 days Alpha Architect Value is expected to generate 0.8 times more return on investment than IShares MSCI. However, Alpha Architect Value is 1.25 times less risky than IShares MSCI. It trades about 0.08 of its potential returns per unit of risk. iShares MSCI Intl is currently generating about 0.0 per unit of risk. If you would invest  2,581  in Alpha Architect Value on September 17, 2024 and sell it today you would earn a total of  90.00  from holding Alpha Architect Value or generate 3.49% return on investment over 90 days.

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

Alpha Architect Value  vs.  iShares MSCI Intl

Alpha Architect Value

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Value are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alpha Architect is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Alpha Architect and IShares MSCI

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

The idea behind Alpha Architect Value and iShares MSCI Intl 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.