Correlation Between Third Avenue and American Funds
Can any of the company-specific risk be diversified away by investing in both Third Avenue and American Funds 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 American Funds 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 American Funds Smallcap, you can compare the effects of market volatilities on Third Avenue and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and American Funds.
Diversification Opportunities for Third Avenue and American Funds
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Third and American is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Value and American Funds Smallcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Smallcap 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Smallcap has no effect on the direction of Third Avenue i.e., Third Avenue and American Funds go up and down completely randomly.
Pair Corralation between Third Avenue and American Funds
Assuming the 90 days horizon Third Avenue Value is expected to under-perform the American Funds. In addition to that, Third Avenue is 1.17 times more volatile than American Funds Smallcap. It trades about -0.02 of its total potential returns per unit of risk. American Funds Smallcap is currently generating about 0.11 per unit of volatility. If you would invest 6,844 in American Funds Smallcap on September 12, 2024 and sell it today you would earn a total of 350.00 from holding American Funds Smallcap or generate 5.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Third Avenue Value vs. American Funds Smallcap
Performance |
| Timeline |
| Third Avenue Value |
| American Funds Smallcap |
Third Avenue and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Third Avenue and American Funds
The main advantage of trading using opposite Third Avenue and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Third Avenue position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Third Avenue vs. Third Avenue Real | Third Avenue vs. Third Avenue Small Cap | Third Avenue vs. Smead Value Fund | Third Avenue vs. Baron Focused Growth |
| American Funds vs. T Rowe Price | American Funds vs. Prudential High Yield | American Funds vs. City National Rochdale | American Funds vs. Strategic Advisers Income |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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