Correlation Between Third Avenue and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Third Avenue and Mid 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 Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Third Avenue Value and Mid Cap Growth, you can compare the effects of market volatilities on Third Avenue and Mid 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 Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and Mid Cap.
Diversification Opportunities for Third Avenue and Mid Cap
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Third and Mid is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Value and Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid 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 Value are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Growth has no effect on the direction of Third Avenue i.e., Third Avenue and Mid Cap go up and down completely randomly.
Pair Corralation between Third Avenue and Mid Cap
Assuming the 90 days horizon Third Avenue is expected to generate 17.41 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Third Avenue Value is 1.04 times less risky than Mid Cap. It trades about 0.0 of its potential returns per unit of risk. Mid Cap Growth is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,986 in Mid Cap Growth on November 2, 2024 and sell it today you would earn a total of 1,006 from holding Mid Cap Growth or generate 33.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Third Avenue Value vs. Mid Cap Growth
Performance |
| Timeline |
| Third Avenue Value |
| Mid Cap Growth |
Third Avenue and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Third Avenue and Mid Cap
The main advantage of trading using opposite Third Avenue and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Third Avenue position performs unexpectedly, Mid 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 Mid Cap will offset losses from the drop in Mid Cap's long position.The idea behind Third Avenue Value and Mid Cap Growth pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Mid Cap vs. Touchstone Sustainability And | Mid Cap vs. Growth Opportunities Fund | Mid Cap vs. Total Return Fund | Mid Cap vs. William Blair International |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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