Correlation Between ETF Series and Alpha Architect

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

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

Diversification Opportunities for ETF Series and Alpha Architect

0.75

Correlation Coefficient

ETF Series  Alpha Architect

Poor diversification

The 3 months correlation between ETF and Alpha is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ETF Series Solutions and Alpha Architect Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Global and ETF Series 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 ETF Series Solutions 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 Global has no effect on the direction of ETF Series i.e., ETF Series and Alpha Architect go up and down completely randomly.

Pair Corralation between ETF Series and Alpha Architect

Given the investment horizon of 90 days ETF Series Solutions is expected to generate 0.74 times more return on investment than Alpha Architect. However, ETF Series Solutions is 1.36 times less risky than Alpha Architect. It trades about 0.18 of its potential returns per unit of risk. Alpha Architect Global is currently generating about 0.12 per unit of risk. If you would invest  3,723  in ETF Series Solutions on June 28, 2025 and sell it today you would earn a total of  218.00  from holding ETF Series Solutions or generate 5.86% return on investment over 90 days.

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

ETF Series Solutions  vs.  Alpha Architect Global

ETF Series Solutions

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ETF Series is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Alpha Architect Global

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Global are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Alpha Architect is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ETF Series and Alpha Architect

The main advantage of trading using opposite ETF Series and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETF Series 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 ETF Series Solutions and Alpha Architect Global 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.