Correlation Between Alpha Architect and ProShares Hedge

Can any of the company-specific risk be diversified away by investing in both Alpha Architect and ProShares Hedge 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 ProShares Hedge 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 ProShares Hedge Replication, you can compare the effects of market volatilities on Alpha Architect and ProShares Hedge 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 ProShares Hedge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Architect and ProShares Hedge.

Diversification Opportunities for Alpha Architect and ProShares Hedge

0.82

Correlation Coefficient

Alpha Architect  ProShares Hedge

Very poor diversification

The 3 months correlation between Alpha and ProShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect High and ProShares Hedge Replication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Hedge Repl 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 ProShares Hedge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Hedge Repl has no effect on the direction of Alpha Architect i.e., Alpha Architect and ProShares Hedge go up and down completely randomly.

Pair Corralation between Alpha Architect and ProShares Hedge

Given the investment horizon of 90 days Alpha Architect is expected to generate 2.6 times less return on investment than ProShares Hedge. But when comparing it to its historical volatility, Alpha Architect High is 1.12 times less risky than ProShares Hedge. It trades about 0.09 of its potential returns per unit of risk. ProShares Hedge Replication is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,853  in ProShares Hedge Replication on May 2, 2025 and sell it today you would earn a total of  154.00  from holding ProShares Hedge Replication or generate 3.17% return on investment over 90 days.

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

Alpha Architect High  vs.  ProShares Hedge Replication

Alpha Architect High

Risk-Adjusted Performance

Modest

Over the last 90 days Alpha Architect High has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Alpha Architect is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

ProShares Hedge Repl

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Hedge Replication are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, ProShares Hedge is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alpha Architect and ProShares Hedge

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

The idea behind Alpha Architect High and ProShares Hedge Replication 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.