Correlation Between SPDR Kensho and Alpha Architect

Can any of the company-specific risk be diversified away by investing in both SPDR Kensho 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 Kensho 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 Kensho New and Alpha Architect Quantitative, you can compare the effects of market volatilities on SPDR Kensho 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 Kensho with a short position of Alpha Architect. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Kensho and Alpha Architect.

Diversification Opportunities for SPDR Kensho and Alpha Architect

0.98

Correlation Coefficient

SPDR Kensho  Alpha Architect

Almost no diversification

The 3 months correlation between SPDR and Alpha is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Kensho New 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 Kensho 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 Kensho New 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 Kensho i.e., SPDR Kensho and Alpha Architect go up and down completely randomly.

Pair Corralation between SPDR Kensho and Alpha Architect

Given the investment horizon of 90 days SPDR Kensho is expected to generate 1.13 times less return on investment than Alpha Architect. In addition to that, SPDR Kensho is 1.04 times more volatile than Alpha Architect Quantitative. It trades about 0.22 of its total potential returns per unit of risk. Alpha Architect Quantitative is currently generating about 0.25 per unit of volatility. If you would invest  5,999  in Alpha Architect Quantitative on September 2, 2024 and sell it today you would earn a total of  1,154  from holding Alpha Architect Quantitative or generate 19.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

SPDR Kensho New  vs.  Alpha Architect Quantitative

SPDR Kensho New

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Kensho New are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, SPDR Kensho reported solid returns over the last few months and may actually be approaching a breakup point.

Alpha Architect Quan

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Quantitative are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Alpha Architect displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR Kensho and Alpha Architect

The main advantage of trading using opposite SPDR Kensho and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Kensho 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 Kensho New 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.