Correlation Between Cambria Value and Alpha Architect

Can any of the company-specific risk be diversified away by investing in both Cambria Value 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 Cambria Value and Alpha Architect into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cambria Value and and Alpha Architect High, you can compare the effects of market volatilities on Cambria Value 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 Cambria Value with a short position of Alpha Architect. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cambria Value and Alpha Architect.

Diversification Opportunities for Cambria Value and Alpha Architect

-0.49

Correlation Coefficient

Cambria Value  Alpha Architect

Very good diversification

The 3 months correlation between Cambria and Alpha is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Value and and Alpha Architect High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect High and Cambria Value 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 Cambria Value and 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 High has no effect on the direction of Cambria Value i.e., Cambria Value and Alpha Architect go up and down completely randomly.

Pair Corralation between Cambria Value and Alpha Architect

Given the investment horizon of 90 days Cambria Value and is expected to generate 3.04 times more return on investment than Alpha Architect. However, Cambria Value is 3.04 times more volatile than Alpha Architect High. It trades about 0.19 of its potential returns per unit of risk. Alpha Architect High is currently generating about 0.04 per unit of risk. If you would invest  2,881  in Cambria Value and on September 3, 2024 and sell it today you would earn a total of  338.00  from holding Cambria Value and or generate 11.73% return on investment over 90 days.

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

Cambria Value and  vs.  Alpha Architect High

Cambria Value

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Value and are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Cambria Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alpha Architect High

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect High are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Alpha Architect is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cambria Value and Alpha Architect

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

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.