Correlation Between Longleaf Partners and Sequoia Fund

Can any of the company-specific risk be diversified away by investing in both Longleaf Partners and Sequoia Fund 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 Longleaf Partners and Sequoia Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Longleaf Partners Fund and Sequoia Fund Inc, you can compare the effects of market volatilities on Longleaf Partners and Sequoia Fund 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 Longleaf Partners with a short position of Sequoia Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longleaf Partners and Sequoia Fund.

Diversification Opportunities for Longleaf Partners and Sequoia Fund

0.68

Correlation Coefficient

Longleaf Partners  Sequoia Fund

Poor diversification

The 3 months correlation between Longleaf and Sequoia is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Longleaf Partners Fund and Sequoia Fund Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sequoia Fund and Longleaf Partners 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 Longleaf Partners Fund are associated (or correlated) with Sequoia Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sequoia Fund has no effect on the direction of Longleaf Partners i.e., Longleaf Partners and Sequoia Fund go up and down completely randomly.

Pair Corralation between Longleaf Partners and Sequoia Fund

Assuming the 90 days horizon Longleaf Partners Fund is expected to under-perform the Sequoia Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Longleaf Partners Fund is 1.46 times less risky than Sequoia Fund. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Sequoia Fund Inc is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  18,642  in Sequoia Fund Inc on October 26, 2024 and sell it today you would earn a total of  698.00  from holding Sequoia Fund Inc or generate 3.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Longleaf Partners Fund  vs.  Sequoia Fund Inc

Longleaf Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Longleaf Partners Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Longleaf Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sequoia Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sequoia Fund Inc has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sequoia Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Longleaf Partners and Sequoia Fund

The main advantage of trading using opposite Longleaf Partners and Sequoia Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Longleaf Partners position performs unexpectedly, Sequoia Fund 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 Sequoia Fund will offset losses from the drop in Sequoia Fund's long position.

The idea behind Longleaf Partners Fund and Sequoia Fund Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.