Correlation Between Global Small and Third Avenue
Can any of the company-specific risk be diversified away by investing in both Global Small and Third Avenue 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 Global Small and Third Avenue into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Small Cap and Third Avenue Real, you can compare the effects of market volatilities on Global Small and Third Avenue 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 Global Small with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Small and Third Avenue.
Diversification Opportunities for Global Small and Third Avenue
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Global and Third is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Global Small Cap and Third Avenue Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Real and Global Small 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 Global Small Cap are associated (or correlated) with Third Avenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Third Avenue Real has no effect on the direction of Global Small i.e., Global Small and Third Avenue go up and down completely randomly.
Pair Corralation between Global Small and Third Avenue
Assuming the 90 days horizon Global Small is expected to generate 12.0 times less return on investment than Third Avenue. But when comparing it to its historical volatility, Global Small Cap is 1.05 times less risky than Third Avenue. It trades about 0.0 of its potential returns per unit of risk. Third Avenue Real is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,563 in Third Avenue Real on September 12, 2024 and sell it today you would earn a total of 4.00 from holding Third Avenue Real or generate 0.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Global Small Cap vs. Third Avenue Real
Performance |
| Timeline |
| Global Small Cap |
| Third Avenue Real |
Global Small and Third Avenue Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Small and Third Avenue
The main advantage of trading using opposite Global Small and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Small position performs unexpectedly, Third Avenue 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 Third Avenue will offset losses from the drop in Third Avenue's long position.| Global Small vs. Third Avenue Real | Global Small vs. Third Avenue Small Cap | Global Small vs. Smead Value Fund | Global Small vs. Baron Focused Growth |
| Third Avenue vs. Third Avenue Small Cap | Third Avenue vs. Baron Real Estate | Third Avenue vs. Third Avenue Value | Third Avenue vs. Artisan Global Value |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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