Correlation Between Third Avenue and Global Small
Can any of the company-specific risk be diversified away by investing in both Third Avenue and Global 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 Global Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Third Avenue Small Cap and Global Small Cap, you can compare the effects of market volatilities on Third Avenue and Global 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 Global Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and Global Small.
Diversification Opportunities for Third Avenue and Global Small
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Third and Global is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Small Cap and Global Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global 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 Small Cap are associated (or correlated) with Global Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Small Cap has no effect on the direction of Third Avenue i.e., Third Avenue and Global Small go up and down completely randomly.
Pair Corralation between Third Avenue and Global Small
Assuming the 90 days horizon Third Avenue is expected to generate 1.5 times less return on investment than Global Small. In addition to that, Third Avenue is 1.1 times more volatile than Global Small Cap. It trades about 0.04 of its total potential returns per unit of risk. Global Small Cap is currently generating about 0.06 per unit of volatility. If you would invest 1,545 in Global Small Cap on September 12, 2024 and sell it today you would earn a total of 491.00 from holding Global Small Cap or generate 31.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Third Avenue Small Cap vs. Global Small Cap
Performance |
| Timeline |
| Third Avenue Small |
| Global Small Cap |
Third Avenue and Global Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Third Avenue and Global Small
The main advantage of trading using opposite Third Avenue and Global Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Third Avenue position performs unexpectedly, Global 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 Global Small will offset losses from the drop in Global Small's long position.| Third Avenue vs. Vanguard Small Cap Value | Third Avenue vs. SCOR PK | Third Avenue vs. Morningstar Unconstrained Allocation | Third Avenue vs. Thrivent High Yield |
| Global Small vs. Third Avenue Real | Global Small vs. Third Avenue Small Cap | Global Small vs. Smead Value Fund | Global Small vs. Baron Focused Growth |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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