Correlation Between Third Avenue and Century Small

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

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

Diversification Opportunities for Third Avenue and Century Small

0.94

Correlation Coefficient

Third Avenue  Century Small

Almost no diversification

The 3 months correlation between Third and Century is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Third Avenue Real and Century Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Small Cap 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 Real are associated (or correlated) with Century Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Small Cap has no effect on the direction of Third Avenue i.e., Third Avenue and Century Small go up and down completely randomly.

Pair Corralation between Third Avenue and Century Small

Assuming the 90 days horizon Third Avenue is expected to generate 2.37 times less return on investment than Century Small. But when comparing it to its historical volatility, Third Avenue Real is 1.21 times less risky than Century Small. It trades about 0.1 of its potential returns per unit of risk. Century Small Cap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,305  in Century Small Cap on May 3, 2025 and sell it today you would earn a total of  538.00  from holding Century Small Cap or generate 12.5% return on investment over 90 days.

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

Third Avenue Real  vs.  Century Small Cap

Third Avenue Real

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Third Avenue Real are ranked lower than 7 (%) 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.

Century Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Century Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Century Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Third Avenue and Century Small

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

The idea behind Third Avenue Real and Century 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.