Correlation Between Alpha Architect and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Alpha Architect and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alpha Architect 1 3 and Dow Jones Industrial, you can compare the effects of market volatilities on Alpha Architect and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Architect and Dow Jones.
Diversification Opportunities for Alpha Architect and Dow Jones
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Alpha and Dow is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect 1 3 and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 1 3 are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Alpha Architect i.e., Alpha Architect and Dow Jones go up and down completely randomly.
Pair Corralation between Alpha Architect and Dow Jones
Given the investment horizon of 90 days Alpha Architect is expected to generate 15.72 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Alpha Architect 1 3 is 54.34 times less risky than Dow Jones. It trades about 0.84 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 4,211,440 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 218,211 from holding Dow Jones Industrial or generate 5.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alpha Architect 1 3 vs. Dow Jones Industrial
Performance |
| Timeline |
Alpha Architect and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Alpha Architect 1 3
Pair trading matchups for Alpha Architect
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Alpha Architect and Dow Jones
The main advantage of trading using opposite Alpha Architect and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alpha Architect position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Alpha Architect vs. First Trust Low | Alpha Architect vs. First Trust Senior | Alpha Architect vs. First Trust TCW | Alpha Architect vs. First Trust Tactical |
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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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