Correlation Between Third Avenue and Small Cap
Can any of the company-specific risk be diversified away by investing in both Third Avenue and Small Cap 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 Third Avenue and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Third Avenue Real and Small Cap Growth, you can compare the effects of market volatilities on Third Avenue and Small Cap 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 Third Avenue with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and Small Cap.
Diversification Opportunities for Third Avenue and Small Cap
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Third and Small is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Real and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Third Avenue 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 Third Avenue Real are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Third Avenue i.e., Third Avenue and Small Cap go up and down completely randomly.
Pair Corralation between Third Avenue and Small Cap
Assuming the 90 days horizon Third Avenue Real is expected to generate 0.74 times more return on investment than Small Cap. However, Third Avenue Real is 1.35 times less risky than Small Cap. It trades about 0.11 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.04 per unit of risk. If you would invest 2,536 in Third Avenue Real on September 13, 2024 and sell it today you would earn a total of 45.00 from holding Third Avenue Real or generate 1.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Third Avenue Real vs. Small Cap Growth
Performance |
| Timeline |
| Third Avenue Real |
| Small Cap Growth |
Third Avenue and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Third Avenue and Small Cap
The main advantage of trading using opposite Third Avenue and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Third Avenue position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| 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 |
| Small Cap vs. Focused Dynamic Growth | Small Cap vs. Heritage Fund Investor | Small Cap vs. Emerging Markets Fund | Small Cap vs. Small Cap 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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