Correlation Between A3 Alternative and Vanguard Index

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Can any of the company-specific risk be diversified away by investing in both A3 Alternative and Vanguard Index 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 A3 Alternative and Vanguard Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between A3 Alternative Credit and Vanguard Index Trust, you can compare the effects of market volatilities on A3 Alternative and Vanguard Index 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 A3 Alternative with a short position of Vanguard Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of A3 Alternative and Vanguard Index.

Diversification Opportunities for A3 Alternative and Vanguard Index

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between AAACX and Vanguard is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding A3 Alternative Credit and Vanguard Index Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Index Trust and A3 Alternative 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 A3 Alternative Credit are associated (or correlated) with Vanguard Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Index Trust has no effect on the direction of A3 Alternative i.e., A3 Alternative and Vanguard Index go up and down completely randomly.

Pair Corralation between A3 Alternative and Vanguard Index

Assuming the 90 days horizon A3 Alternative is expected to generate 21.79 times less return on investment than Vanguard Index. But when comparing it to its historical volatility, A3 Alternative Credit is 4.84 times less risky than Vanguard Index. It trades about 0.06 of its potential returns per unit of risk. Vanguard Index Trust is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  35,593  in Vanguard Index Trust on May 11, 2022 and sell it today you would earn a total of  2,505  from holding Vanguard Index Trust or generate 7.04% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

A3 Alternative Credit  vs.  Vanguard Index Trust

 Performance (%) 
       Timeline  
A3 Alternative Credit 
AAACX Performance
0 of 100
Over the last 90 days A3 Alternative Credit has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, A3 Alternative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AAACX Price Channel

Vanguard Index Trust 
Vanguard Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Index Trust are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Index is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Price Channel

A3 Alternative and Vanguard Index Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with A3 Alternative and Vanguard Index

The main advantage of trading using opposite A3 Alternative and Vanguard Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A3 Alternative position performs unexpectedly, Vanguard Index 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 Index will offset losses from the drop in Vanguard Index's long position.

A3 Alternative Credit

Pair trading matchups for A3 Alternative

The idea behind A3 Alternative Credit and Vanguard Index Trust 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.

Vanguard Index Trust

Pair trading matchups for Vanguard Index

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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