Correlation Between Vanguard 500 and Third Avenue
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 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 Vanguard 500 and Third Avenue into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard 500 Index and Third Avenue Real, you can compare the effects of market volatilities on Vanguard 500 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 Vanguard 500 with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Third Avenue.
Diversification Opportunities for Vanguard 500 and Third Avenue
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Third is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Third Avenue Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Real and Vanguard 500 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 Vanguard 500 Index 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 Real has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Third Avenue go up and down completely randomly.
Pair Corralation between Vanguard 500 and Third Avenue
Assuming the 90 days horizon Vanguard 500 is expected to generate 1.26 times less return on investment than Third Avenue. But when comparing it to its historical volatility, Vanguard 500 Index is 1.14 times less risky than Third Avenue. It trades about 0.13 of its potential returns per unit of risk. Third Avenue Real is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,183 in Third Avenue Real on September 1, 2024 and sell it today you would earn a total of 420.00 from holding Third Avenue Real or generate 19.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Vanguard 500 Index vs. Third Avenue Real
Performance |
| Timeline |
| Vanguard 500 Index |
| Third Avenue Real |
Vanguard 500 and Third Avenue Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and Third Avenue
The main advantage of trading using opposite Vanguard 500 and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 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.| Vanguard 500 vs. Vanguard Total Bond | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Extended Market |
| Third Avenue vs. Third Avenue Small Cap | Third Avenue vs. Baron Real Estate | Third Avenue vs. Third Avenue Value | Third Avenue vs. Artisan Global Value |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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