Correlation Between Selected American and Third Avenue

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

By analyzing existing cross correlation between Selected American Shares and Third Avenue Small Cap, you can compare the effects of market volatilities on Selected American 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 Selected American with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Selected American and Third Avenue.

Diversification Opportunities for Selected American and Third Avenue

-0.41

Correlation Coefficient

Selected American  Third Avenue

Very good diversification

The 3 months correlation between Selected and Third is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Selected American Shares and Third Avenue Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Small and Selected American 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 Selected American Shares 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 Small has no effect on the direction of Selected American i.e., Selected American and Third Avenue go up and down completely randomly.

Pair Corralation between Selected American and Third Avenue

Assuming the 90 days horizon Selected American Shares is expected to under-perform the Third Avenue. In addition to that, Selected American is 1.43 times more volatile than Third Avenue Small Cap. It trades about 0.0 of its total potential returns per unit of risk. Third Avenue Small Cap is currently generating about 0.14 per unit of volatility. If you would invest  1,778  in Third Avenue Small Cap on May 7, 2025 and sell it today you would earn a total of  160.00  from holding Third Avenue Small Cap or generate 9.0% return on investment over 90 days.

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

Selected American Shares  vs.  Third Avenue Small Cap

Selected American Shares

Risk-Adjusted Performance

Weakest

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

Third Avenue Small

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Third Avenue Small Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Third Avenue may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Selected American and Third Avenue

The main advantage of trading using opposite Selected American and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Selected American 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 Selected American Shares and Third Avenue Small Cap 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.