Correlation Between First Trust and Alpha Architect
Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and Alpha Architect into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust International and Alpha Architect International, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of Alpha Architect. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Alpha Architect.
Diversification Opportunities for First Trust and Alpha Architect
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between First and Alpha is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding First Trust International and Alpha Architect International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Inte and First Trust 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 First Trust International 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 Inte has no effect on the direction of First Trust i.e., First Trust and Alpha Architect go up and down completely randomly.
Pair Corralation between First Trust and Alpha Architect
Given the investment horizon of 90 days First Trust International is expected to generate 1.1 times more return on investment than Alpha Architect. However, First Trust is 1.1 times more volatile than Alpha Architect International. It trades about 0.06 of its potential returns per unit of risk. Alpha Architect International is currently generating about 0.04 per unit of risk. If you would invest 3,989 in First Trust International on September 2, 2024 and sell it today you would earn a total of 1,003 from holding First Trust International or generate 25.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust International vs. Alpha Architect International
Performance |
| Timeline |
| First Trust International |
| Alpha Architect Inte |
First Trust and Alpha Architect Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Alpha Architect
The main advantage of trading using opposite First Trust and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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.| First Trust vs. First Trust Mid | First Trust vs. First Trust Emerging | First Trust vs. First Trust Emerging | First Trust vs. First Trust SSI |
| Alpha Architect vs. Alpha Architect Quantitative | Alpha Architect vs. Alpha Architect International | Alpha Architect vs. Alpha Architect Quantitative | Alpha Architect vs. Alpha Architect Value |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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