Correlation Between Modern Capital and Longleaf Partners
Can any of the company-specific risk be diversified away by investing in both Modern Capital and Longleaf Partners 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 Modern Capital and Longleaf Partners into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Modern Capital Tactical and Longleaf Partners Fund, you can compare the effects of market volatilities on Modern Capital and Longleaf Partners 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 Modern Capital with a short position of Longleaf Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of Modern Capital and Longleaf Partners.
Diversification Opportunities for Modern Capital and Longleaf Partners
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Modern and Longleaf is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Modern Capital Tactical and Longleaf Partners Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners and Modern Capital 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 Modern Capital Tactical are associated (or correlated) with Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners has no effect on the direction of Modern Capital i.e., Modern Capital and Longleaf Partners go up and down completely randomly.
Pair Corralation between Modern Capital and Longleaf Partners
Assuming the 90 days horizon Modern Capital Tactical is expected to generate 0.58 times more return on investment than Longleaf Partners. However, Modern Capital Tactical is 1.72 times less risky than Longleaf Partners. It trades about 0.38 of its potential returns per unit of risk. Longleaf Partners Fund is currently generating about 0.07 per unit of risk. If you would invest 1,066 in Modern Capital Tactical on August 31, 2024 and sell it today you would earn a total of 36.00 from holding Modern Capital Tactical or generate 3.38% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Modern Capital Tactical vs. Longleaf Partners Fund
Performance |
Timeline |
Modern Capital Tactical |
Longleaf Partners |
Modern Capital and Longleaf Partners Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Modern Capital and Longleaf Partners
The main advantage of trading using opposite Modern Capital and Longleaf Partners positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Modern Capital position performs unexpectedly, Longleaf Partners 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 Longleaf Partners will offset losses from the drop in Longleaf Partners' long position.Modern Capital vs. American Funds American | Modern Capital vs. American Funds American | Modern Capital vs. American Balanced | Modern Capital vs. American Balanced Fund |
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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