Correlation Between Third Avenue and Smallcap Growth
Can any of the company-specific risk be diversified away by investing in both Third Avenue and Smallcap Growth 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 Smallcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Third Avenue Small and Smallcap Growth Fund, you can compare the effects of market volatilities on Third Avenue and Smallcap Growth 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 Smallcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and Smallcap Growth.
Diversification Opportunities for Third Avenue and Smallcap Growth
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Third and Smallcap is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Small and Smallcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap 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 Small are associated (or correlated) with Smallcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Growth has no effect on the direction of Third Avenue i.e., Third Avenue and Smallcap Growth go up and down completely randomly.
Pair Corralation between Third Avenue and Smallcap Growth
Assuming the 90 days horizon Third Avenue is expected to generate 2.28 times less return on investment than Smallcap Growth. But when comparing it to its historical volatility, Third Avenue Small is 1.01 times less risky than Smallcap Growth. It trades about 0.03 of its potential returns per unit of risk. Smallcap Growth Fund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,235 in Smallcap Growth Fund on August 30, 2024 and sell it today you would earn a total of 492.00 from holding Smallcap Growth Fund or generate 39.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Third Avenue Small vs. Smallcap Growth Fund
Performance |
| Timeline |
| Third Avenue Small |
| Smallcap Growth |
Third Avenue and Smallcap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Third Avenue and Smallcap Growth
The main advantage of trading using opposite Third Avenue and Smallcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Third Avenue position performs unexpectedly, Smallcap Growth 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 Smallcap Growth will offset losses from the drop in Smallcap Growth's long position.| Third Avenue vs. Fidelity Managed Retirement | Third Avenue vs. American Funds Retirement | Third Avenue vs. Target Retirement 2040 | Third Avenue vs. Hartford Moderate Allocation |
| Smallcap Growth vs. Vanguard Equity Income | Smallcap Growth vs. Alternative Asset Allocation | Smallcap Growth vs. Enhanced Large Pany | Smallcap Growth vs. Fundamental Large Cap |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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