Correlation Between Alpha Architect and WisdomTree Europe

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

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

Diversification Opportunities for Alpha Architect and WisdomTree Europe

0.79

Correlation Coefficient

Alpha Architect  WisdomTree Europe

Poor diversification

The 3 months correlation between Alpha and WisdomTree is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect High and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and Alpha Architect 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 Alpha Architect High are associated (or correlated) with WisdomTree Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Europe has no effect on the direction of Alpha Architect i.e., Alpha Architect and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Alpha Architect and WisdomTree Europe

Given the investment horizon of 90 days Alpha Architect is expected to generate 7.04 times less return on investment than WisdomTree Europe. But when comparing it to its historical volatility, Alpha Architect High is 3.18 times less risky than WisdomTree Europe. It trades about 0.07 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  6,441  in WisdomTree Europe SmallCap on May 5, 2025 and sell it today you would earn a total of  451.00  from holding WisdomTree Europe SmallCap or generate 7.0% return on investment over 90 days.

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

Alpha Architect High  vs.  WisdomTree Europe SmallCap

Alpha Architect High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect High are ranked lower than 5 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

WisdomTree Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe SmallCap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Alpha Architect and WisdomTree Europe

The main advantage of trading using opposite Alpha Architect and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alpha Architect position performs unexpectedly, WisdomTree Europe 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 WisdomTree Europe will offset losses from the drop in WisdomTree Europe's long position.

The idea behind Alpha Architect High and WisdomTree Europe SmallCap 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..