Correlation Between Third Avenue and Century Small
Can any of the company-specific risk be diversified away by investing in both Third Avenue and Century Small 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 Century Small 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 Century Small Cap, you can compare the effects of market volatilities on Third Avenue and Century Small 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 Century Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and Century Small.
Diversification Opportunities for Third Avenue and Century Small
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Third and Century is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Real and Century Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Small Cap 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 Century Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Small Cap has no effect on the direction of Third Avenue i.e., Third Avenue and Century Small go up and down completely randomly.
Pair Corralation between Third Avenue and Century Small
Assuming the 90 days horizon Third Avenue is expected to generate 1.42 times less return on investment than Century Small. But when comparing it to its historical volatility, Third Avenue Real is 1.13 times less risky than Century Small. It trades about 0.09 of its potential returns per unit of risk. Century Small Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 3,525 in Century Small Cap on September 14, 2024 and sell it today you would earn a total of 1,384 from holding Century Small Cap or generate 39.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.63% |
| Values | Daily Returns |
Third Avenue Real vs. Century Small Cap
Performance |
| Timeline |
| Third Avenue Real |
| Century Small Cap |
Third Avenue and Century Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Third Avenue and Century Small
The main advantage of trading using opposite Third Avenue and Century Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Third Avenue position performs unexpectedly, Century Small 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 Century Small will offset losses from the drop in Century Small'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 |
| Century Small vs. Third Avenue Real | Century Small vs. Aegis Value Fund | Century Small vs. Litman Gregory Masters | Century Small vs. Marsico Growth 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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