Correlation Between Longleaf Partners and Third Avenue

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

Diversification Opportunities for Longleaf Partners and Third Avenue

-0.55

Correlation Coefficient

Longleaf Partners  Third Avenue

Excellent diversification

The 3 months correlation between Longleaf and Third is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Longleaf Partners Fund and Third Avenue Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Value 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 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 Value has no effect on the direction of Longleaf Partners i.e., Longleaf Partners and Third Avenue go up and down completely randomly.

Pair Corralation between Longleaf Partners and Third Avenue

Assuming the 90 days horizon Longleaf Partners Fund is expected to under-perform the Third Avenue. But the mutual fund apears to be less risky and, when comparing its historical volatility, Longleaf Partners Fund is 1.39 times less risky than Third Avenue. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Third Avenue Value is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,751  in Third Avenue Value on December 29, 2024 and sell it today you would earn a total of  269.00  from holding Third Avenue Value or generate 4.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Longleaf Partners Fund  vs.  Third Avenue Value

Longleaf Partners

Risk-Adjusted Performance

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.

Third Avenue Value

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Third Avenue Value are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Third Avenue 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 Third Avenue

The main advantage of trading using opposite Longleaf Partners and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Longleaf Partners 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 Longleaf Partners Fund and Third Avenue Value 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 Commodity Directory module to find actively traded commodities issued by global exchanges.