Correlation Between Floating Rate and Third Avenue
Can any of the company-specific risk be diversified away by investing in both Floating Rate 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 Floating Rate and Third Avenue into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Floating Rate Income and Third Avenue Real, you can compare the effects of market volatilities on Floating Rate 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 Floating Rate with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floating Rate and Third Avenue.
Diversification Opportunities for Floating Rate and Third Avenue
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Floating and Third is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate Income 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 Floating Rate 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 Floating Rate Income 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 Floating Rate i.e., Floating Rate and Third Avenue go up and down completely randomly.
Pair Corralation between Floating Rate and Third Avenue
Assuming the 90 days horizon Floating Rate is expected to generate 39.08 times less return on investment than Third Avenue. But when comparing it to its historical volatility, Floating Rate Income is 17.27 times less risky than Third Avenue. It trades about 0.1 of its potential returns per unit of risk. Third Avenue Real is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 2,306 in Third Avenue Real on November 3, 2024 and sell it today you would earn a total of 117.00 from holding Third Avenue Real or generate 5.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Floating Rate Income vs. Third Avenue Real
Performance |
| Timeline |
| Floating Rate Income |
| Third Avenue Real |
Floating Rate and Third Avenue Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Floating Rate and Third Avenue
The main advantage of trading using opposite Floating Rate and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floating Rate 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.| Floating Rate vs. Artisan Small Cap | Floating Rate vs. Upright Growth Income | Floating Rate vs. L Abbett Growth | Floating Rate vs. Praxis Genesis Growth |
| Third Avenue vs. Transamerica Mlp Energy | Third Avenue vs. Adams Natural Resources | Third Avenue vs. Thrivent Natural Resources | Third Avenue vs. Goehring Rozencwajg Resources |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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