Correlation Between Target Retirement and Third Avenue
Can any of the company-specific risk be diversified away by investing in both Target Retirement and Third Avenue 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 Target Retirement and Third Avenue into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target Retirement 2040 and Third Avenue Small, you can compare the effects of market volatilities on Target Retirement and Third Avenue 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 Target Retirement with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Third Avenue.
Diversification Opportunities for Target Retirement and Third Avenue
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Target and Third is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Third Avenue Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Small and Target Retirement 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 Target Retirement 2040 are associated (or correlated) with Third Avenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Third Avenue Small has no effect on the direction of Target Retirement i.e., Target Retirement and Third Avenue go up and down completely randomly.
Pair Corralation between Target Retirement and Third Avenue
Assuming the 90 days horizon Target Retirement is expected to generate 1.76 times less return on investment than Third Avenue. But when comparing it to its historical volatility, Target Retirement 2040 is 2.95 times less risky than Third Avenue. It trades about 0.27 of its potential returns per unit of risk. Third Avenue Small is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,156 in Third Avenue Small on September 1, 2024 and sell it today you would earn a total of 102.00 from holding Third Avenue Small or generate 4.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Target Retirement 2040 vs. Third Avenue Small
Performance |
| Timeline |
| Target Retirement 2040 |
| Third Avenue Small |
Target Retirement and Third Avenue Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target Retirement and Third Avenue
The main advantage of trading using opposite Target Retirement and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Retirement position performs unexpectedly, Third Avenue 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 Third Avenue will offset losses from the drop in Third Avenue's long position.| Target Retirement vs. Science Technology Fund | Target Retirement vs. Blackrock Science Technology | Target Retirement vs. Fidelity Advisor Technology | Target Retirement vs. Biotechnology Ultrasector Profund |
| Third Avenue vs. Guidepath Managed Futures | Third Avenue vs. Arrow Managed Futures | Third Avenue vs. Ab Bond Inflation | Third Avenue vs. Ab Bond Inflation |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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