Correlation Between Tweedy Browne and Litman Gregory

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

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

Diversification Opportunities for Tweedy Browne and Litman Gregory

0.78

Correlation Coefficient

Tweedy Browne  Litman Gregory

Poor diversification

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

Pair Corralation between Tweedy Browne and Litman Gregory

Assuming the 90 days horizon Tweedy Browne Global is expected to generate 0.55 times more return on investment than Litman Gregory. However, Tweedy Browne Global is 1.83 times less risky than Litman Gregory. It trades about 0.28 of its potential returns per unit of risk. Litman Gregory Masters is currently generating about 0.14 per unit of risk. 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

Tweedy Browne Global  vs.  Litman Gregory Masters

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.

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.

Pair Trading with Tweedy Browne and Litman Gregory

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

The idea behind Tweedy Browne Global and Litman Gregory Masters 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.