Correlation Between Third Avenue and Mairs Power

Can any of the company-specific risk be diversified away by investing in both Third Avenue and Mairs Power 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 Mairs Power into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Third Avenue Value and Mairs Power Growth, you can compare the effects of market volatilities on Third Avenue and Mairs Power 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 Mairs Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Third Avenue and Mairs Power.

Diversification Opportunities for Third Avenue and Mairs Power

-0.51

Correlation Coefficient

Third Avenue  Mairs Power

Excellent diversification

The 3 months correlation between Third and Mairs is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Value and Mairs Power Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mairs Power Growth 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 Value are associated (or correlated) with Mairs Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mairs Power Growth has no effect on the direction of Third Avenue i.e., Third Avenue and Mairs Power go up and down completely randomly.

Pair Corralation between Third Avenue and Mairs Power

Assuming the 90 days horizon Third Avenue Value is expected to under-perform the Mairs Power. In addition to that, Third Avenue is 1.21 times more volatile than Mairs Power Growth. It trades about -0.06 of its total potential returns per unit of risk. Mairs Power Growth is currently generating about 0.18 per unit of volatility. If you would invest  16,848  in Mairs Power Growth on September 4, 2024 and sell it today you would earn a total of  1,512  from holding Mairs Power Growth or generate 8.97% return on investment over 90 days.

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

Third Avenue Value  vs.  Mairs Power Growth

Third Avenue Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Third Avenue Value has generated negative risk-adjusted returns adding no value to fund investors. 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.

Mairs Power Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mairs Power Growth are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mairs Power may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Third Avenue and Mairs Power

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

The idea behind Third Avenue Value and Mairs Power Growth 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.