Correlation Between SPDR SP and Alpha Architect
Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Alpha Architect into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 400 and Alpha Architect Quantitative, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Alpha Architect. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Alpha Architect.
Diversification Opportunities for SPDR SP and Alpha Architect
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SPDR and Alpha is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Alpha Architect Quantitative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Quan and SPDR SP 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 SPDR SP 400 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 Quan has no effect on the direction of SPDR SP i.e., SPDR SP and Alpha Architect go up and down completely randomly.
Pair Corralation between SPDR SP and Alpha Architect
Given the investment horizon of 90 days SPDR SP is expected to generate 1.32 times less return on investment than Alpha Architect. In addition to that, SPDR SP is 1.05 times more volatile than Alpha Architect Quantitative. It trades about 0.08 of its total potential returns per unit of risk. Alpha Architect Quantitative is currently generating about 0.11 per unit of volatility. If you would invest 3,263 in Alpha Architect Quantitative on September 2, 2024 and sell it today you would earn a total of 1,496 from holding Alpha Architect Quantitative or generate 45.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP 400 vs. Alpha Architect Quantitative
Performance |
| Timeline |
| SPDR SP 400 |
| Alpha Architect Quan |
SPDR SP and Alpha Architect Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Alpha Architect
The main advantage of trading using opposite SPDR SP and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP 400 and Alpha Architect Quantitative 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. Vanguard Mid Cap Value | Alpha Architect vs. SPDR SP Dividend | Alpha Architect vs. Pacer Cash Cows | Alpha Architect vs. iShares SP Mid Cap |
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 CEOs Directory module to screen CEOs from public companies around the world.
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