Correlation Between Alpha Architect and Vanguard Value

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

Diversification Opportunities for Alpha Architect and Vanguard Value

0.71

Correlation Coefficient

Alpha Architect  Vanguard Value

Poor diversification

The 3 months correlation between Alpha and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Architect High and Vanguard Value Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Factor 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 Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Factor has no effect on the direction of Alpha Architect i.e., Alpha Architect and Vanguard Value go up and down completely randomly.

Pair Corralation between Alpha Architect and Vanguard Value

Given the investment horizon of 90 days Alpha Architect is expected to generate 7.08 times less return on investment than Vanguard Value. But when comparing it to its historical volatility, Alpha Architect High is 5.48 times less risky than Vanguard Value. It trades about 0.07 of its potential returns per unit of risk. Vanguard Value Factor is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,876  in Vanguard Value Factor on May 4, 2025 and sell it today you would earn a total of  745.00  from holding Vanguard Value Factor or generate 6.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Alpha Architect High  vs.  Vanguard Value Factor

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.

Vanguard Value Factor

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Factor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vanguard Value may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Alpha Architect and Vanguard Value

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

The idea behind Alpha Architect High and Vanguard Value Factor 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.