Correlation Between Third Avenue and Third Avenue

Can any of the company-specific risk be diversified away by investing in both Third Avenue 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 Third Avenue and Third Avenue 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 Third Avenue Real, you can compare the effects of market volatilities on Third Avenue 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 Third Avenue with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and Third Avenue.

Diversification Opportunities for Third Avenue and Third Avenue

0.7

Correlation Coefficient

Third Avenue  Third Avenue

Poor diversification

The 3 months correlation between Third and Third is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Small Cap 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 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 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 Third Avenue i.e., Third Avenue and Third Avenue go up and down completely randomly.

Pair Corralation between Third Avenue and Third Avenue

Assuming the 90 days horizon Third Avenue is expected to generate 2.79 times less return on investment than Third Avenue. In addition to that, Third Avenue is 1.13 times more volatile than Third Avenue Real. It trades about 0.06 of its total potential returns per unit of risk. Third Avenue Real is currently generating about 0.2 per unit of volatility. If you would invest  2,332  in Third Avenue Real on August 31, 2024 and sell it today you would earn a total of  291.00  from holding Third Avenue Real or generate 12.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Third Avenue Small Cap  vs.  Third Avenue Real

Third Avenue Small

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Third Avenue Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Third Avenue is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Third Avenue Real

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Third Avenue Real are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Third Avenue may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Third Avenue and Third Avenue

The main advantage of trading using opposite Third Avenue and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Third Avenue 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.

The idea behind Third Avenue Small Cap and Third Avenue Real 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.