Correlation Between Vanguard Institutional and A3 Alternative

Can any of the company-specific risk be diversified away by investing in both Vanguard Institutional 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 Institutional 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 Institutional Index and A3 Alternative Credit, you can compare the effects of market volatilities on Vanguard Institutional 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 Institutional with a short position of A3 Alternative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Institutional and A3 Alternative.

Diversification Opportunities for Vanguard Institutional and A3 Alternative

0.6

Correlation Coefficient

Vanguard Institutional  A3 Alternative

Poor diversification

The 3 months correlation between Vanguard and AAACX is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Institutional 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 Institutional 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 Institutional 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 Institutional i.e., Vanguard Institutional and A3 Alternative go up and down completely randomly.

Pair Corralation between Vanguard Institutional and A3 Alternative

Assuming the 90 days horizon Vanguard Institutional Index is expected to under-perform the A3 Alternative. In addition to that, Vanguard Institutional is 3.41 times more volatile than A3 Alternative Credit. It trades about -0.17 of its total potential returns per unit of risk. A3 Alternative Credit is currently generating about -0.13 per unit of volatility. If you would invest  626.00  in A3 Alternative Credit on January 25, 2024 and sell it today you would lose (4.00) from holding A3 Alternative Credit or give up 0.64% of portfolio value over 90 days.

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

Vanguard Institutional Index  vs.  A3 Alternative Credit

Vanguard Institutional

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Institutional Index are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Institutional is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

A3 Alternative Credit

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in A3 Alternative Credit are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, A3 Alternative is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Institutional and A3 Alternative

The main advantage of trading using opposite Vanguard Institutional and A3 Alternative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Institutional 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.

The idea behind Vanguard Institutional Index and A3 Alternative Credit 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.