# Correlation Between Vanguard 500 and A3 Alternative

Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and A3 Alternative 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 Vanguard 500 and A3 Alternative into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard 500 Index and A3 Alternative Credit, you can compare the effects of market volatilities on Vanguard 500 and A3 Alternative 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 Vanguard 500 with a short position of A3 Alternative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and A3 Alternative.

## Diversification Opportunities for Vanguard 500 and A3 Alternative

0.66 | Correlation Coefficient |

### Poor diversification

The 3 months correlation between Vanguard and AAACX is

**0.66**. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and A3 Alternative Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A3 Alternative Credit and Vanguard 500 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 Vanguard 500 Index are associated (or correlated) with A3 Alternative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A3 Alternative Credit has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and A3 Alternative go up and down completely randomly.## Pair Corralation between Vanguard 500 and A3 Alternative

Assuming the 90 days horizon Vanguard 500 Index is expected to generate 1.86 times more return on investment than A3 Alternative. However, Vanguard 500 is 1.86 times more volatile than A3 Alternative Credit. It trades about 0.23 of its potential returns per unit of risk. A3 Alternative Credit is currently generating about 0.06 per unit of risk. If you would invest

**18,259**in Vanguard 500 Index on**May 15, 2022**and sell it today you would**earn a total of 2,351**from holding Vanguard 500 Index or generate**12.88%**return on investment over**90**days.Time Period | 3 Months [change] |

Direction | Moves Together |

Strength | Significant |

Accuracy | 100.0% |

Values | Daily Returns |

## Vanguard 500 Index vs. A3 Alternative Credit

Performance (%) |

Timeline |

Vanguard 500 Index |

A3 Alternative Credit |

## Vanguard 500 and A3 Alternative Volatility Contrast

Predicted Return Density |

Returns |

## Pair Trading with Vanguard 500 and A3 Alternative

The main advantage of trading using opposite Vanguard 500 and A3 Alternative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, A3 Alternative 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 A3 Alternative will offset losses from the drop in A3 Alternative's long position.## Vanguard 500 Index

### Pair trading matchups for Vanguard 500

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Vanguard 500 as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Vanguard 500's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Vanguard 500's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Vanguard 500 Index.

## A3 Alternative Credit

### Pair trading matchups for A3 Alternative

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against A3 Alternative as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. A3 Alternative's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, A3 Alternative's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to A3 Alternative Credit.

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 Fund Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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