Correlation Between Litman Gregory and Tweedy Browne

Can any of the company-specific risk be diversified away by investing in both Litman Gregory and Tweedy Browne 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 Litman Gregory and Tweedy Browne into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Litman Gregory Masters and Tweedy Browne Global, you can compare the effects of market volatilities on Litman Gregory and Tweedy Browne 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 Litman Gregory with a short position of Tweedy Browne. Check out your portfolio center. Please also check ongoing floating volatility patterns of Litman Gregory and Tweedy Browne.

Diversification Opportunities for Litman Gregory and Tweedy Browne

0.78

Correlation Coefficient

Litman Gregory  Tweedy Browne

Poor diversification

The 3 months correlation between Litman and Tweedy is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Litman Gregory Masters and Tweedy Browne Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tweedy Browne Global and Litman Gregory 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 Litman Gregory Masters are associated (or correlated) with Tweedy Browne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tweedy Browne Global has no effect on the direction of Litman Gregory i.e., Litman Gregory and Tweedy Browne go up and down completely randomly.

Pair Corralation between Litman Gregory and Tweedy Browne

Assuming the 90 days horizon Litman Gregory is expected to generate 1.08 times less return on investment than Tweedy Browne. In addition to that, Litman Gregory is 1.83 times more volatile than Tweedy Browne Global. It trades about 0.14 of its total potential returns per unit of risk. Tweedy Browne Global is currently generating about 0.28 per unit of volatility. If you would invest  2,544  in Tweedy Browne Global on December 21, 2024 and sell it today you would earn a total of  261.00  from holding Tweedy Browne Global or generate 10.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Litman Gregory Masters  vs.  Tweedy Browne Global

Litman Gregory Masters

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Masters are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Litman Gregory may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tweedy Browne Global

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tweedy Browne Global are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Tweedy Browne may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Litman Gregory and Tweedy Browne

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

The idea behind Litman Gregory Masters and Tweedy Browne Global 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..