Correlation Between Alpha Architect and First Trust
Can any of the company-specific risk be diversified away by investing in both Alpha Architect and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alpha Architect International and First Trust Equity, you can compare the effects of market volatilities on Alpha Architect and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Architect and First Trust.
Diversification Opportunities for Alpha Architect and First Trust
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between Alpha and First is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect International and First Trust Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Equity 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 International are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Equity has no effect on the direction of Alpha Architect i.e., Alpha Architect and First Trust go up and down completely randomly.
Pair Corralation between Alpha Architect and First Trust
Given the investment horizon of 90 days Alpha Architect International is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Alpha Architect International is 2.18 times less risky than First Trust. The etf trades about -0.03 of its potential returns per unit of risk. The First Trust Equity is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 11,424 in First Trust Equity on August 30, 2024 and sell it today you would earn a total of 1,354 from holding First Trust Equity or generate 11.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alpha Architect International vs. First Trust Equity
Performance |
| Timeline |
| Alpha Architect Inte |
| First Trust Equity |
Alpha Architect and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alpha Architect and First Trust
The main advantage of trading using opposite Alpha Architect and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alpha Architect position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Alpha Architect vs. Alpha Architect Quantitative | Alpha Architect vs. Alpha Architect International | Alpha Architect vs. Alpha Architect Quantitative | Alpha Architect vs. Alpha Architect Value |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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