Correlation Between US Treasury and Alpha Architect
Can any of the company-specific risk be diversified away by investing in both US Treasury 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 US Treasury and Alpha Architect into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Treasury 12 and Alpha Architect 1 3, you can compare the effects of market volatilities on US Treasury 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 US Treasury with a short position of Alpha Architect. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Treasury and Alpha Architect.
Diversification Opportunities for US Treasury and Alpha Architect
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between OBIL and Alpha is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding US Treasury 12 and Alpha Architect 1 3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect 1 and US Treasury 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 US Treasury 12 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 1 has no effect on the direction of US Treasury i.e., US Treasury and Alpha Architect go up and down completely randomly.
Pair Corralation between US Treasury and Alpha Architect
Given the investment horizon of 90 days US Treasury is expected to generate 1.42 times less return on investment than Alpha Architect. In addition to that, US Treasury is 1.83 times more volatile than Alpha Architect 1 3. It trades about 0.31 of its total potential returns per unit of risk. Alpha Architect 1 3 is currently generating about 0.8 per unit of volatility. If you would invest 10,937 in Alpha Architect 1 3 on August 27, 2024 and sell it today you would earn a total of 31.00 from holding Alpha Architect 1 3 or generate 0.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Treasury 12 vs. Alpha Architect 1 3
Performance |
| Timeline |
| US Treasury 12 |
| Alpha Architect 1 |
US Treasury and Alpha Architect Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Treasury and Alpha Architect
The main advantage of trading using opposite US Treasury and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Treasury 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 US Treasury 12 and Alpha Architect 1 3 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. First Trust Low | Alpha Architect vs. First Trust Senior | Alpha Architect vs. First Trust TCW | Alpha Architect vs. First Trust Tactical |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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