Correlation Between Equity Growth and Third Avenue
Can any of the company-specific risk be diversified away by investing in both Equity Growth 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 Equity Growth and Third Avenue into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Growth Fund and Third Avenue Real, you can compare the effects of market volatilities on Equity Growth 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 Equity Growth with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Third Avenue.
Diversification Opportunities for Equity Growth and Third Avenue
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Equity and Third is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund 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 Equity Growth 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 Equity Growth Fund 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 Equity Growth i.e., Equity Growth and Third Avenue go up and down completely randomly.
Pair Corralation between Equity Growth and Third Avenue
Assuming the 90 days horizon Equity Growth is expected to generate 1.3 times less return on investment than Third Avenue. But when comparing it to its historical volatility, Equity Growth Fund is 1.1 times less risky than Third Avenue. It trades about 0.13 of its potential returns per unit of risk. Third Avenue Real is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,192 in Third Avenue Real on September 1, 2024 and sell it today you would earn a total of 425.00 from holding Third Avenue Real or generate 19.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Equity Growth Fund vs. Third Avenue Real
Performance |
| Timeline |
| Equity Growth |
| Third Avenue Real |
Equity Growth and Third Avenue Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and Third Avenue
The main advantage of trading using opposite Equity Growth and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth 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.| Equity Growth vs. Oklahoma College Savings | Equity Growth vs. Ab Bond Inflation | Equity Growth vs. Cref Inflation Linked Bond | Equity Growth vs. Ab Bond Inflation |
| Third Avenue vs. Third Avenue Value | Third Avenue vs. Third Avenue Small Cap | Third Avenue vs. Alpine Realty Income | Third Avenue vs. The Fairholme Fund |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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