Correlation Between Lumia and Alpha Architect
Can any of the company-specific risk be diversified away by investing in both Lumia 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 Lumia and Alpha Architect into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumia and Alpha Architect International, you can compare the effects of market volatilities on Lumia 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 Lumia with a short position of Alpha Architect. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumia and Alpha Architect.
Diversification Opportunities for Lumia and Alpha Architect
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Lumia and Alpha is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lumia 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 Lumia 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 Lumia 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 Lumia i.e., Lumia and Alpha Architect go up and down completely randomly.
Pair Corralation between Lumia and Alpha Architect
Assuming the 90 days trading horizon Lumia is expected to generate 6.15 times more return on investment than Alpha Architect. However, Lumia is 6.15 times more volatile than Alpha Architect International. It trades about 0.17 of its potential returns per unit of risk. Alpha Architect International is currently generating about 0.22 per unit of risk. If you would invest 40.00 in Lumia on December 24, 2024 and sell it today you would earn a total of 7.00 from holding Lumia or generate 17.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Lumia vs. Alpha Architect International
Performance |
| Timeline |
| Lumia |
| Alpha Architect Inte |
Lumia and Alpha Architect Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumia and Alpha Architect
The main advantage of trading using opposite Lumia and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumia 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.The idea behind Lumia and Alpha Architect International 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.| Alpha Architect vs. Davis Select International | Alpha Architect vs. Tidal ETF Trust | Alpha Architect vs. Principal Value ETF | Alpha Architect vs. WisdomTree Emerging Markets |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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