Correlation Between Longleaf Partners and Longleaf Partners

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

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

Diversification Opportunities for Longleaf Partners and Longleaf Partners

0.5

Correlation Coefficient

Longleaf Partners  Longleaf Partners

Very weak diversification

The 3 months correlation between Longleaf and Longleaf is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Longleaf Partners Small Cap and Longleaf Partners Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners and Longleaf Partners 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 Longleaf Partners Small Cap are associated (or correlated) with Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners has no effect on the direction of Longleaf Partners i.e., Longleaf Partners and Longleaf Partners go up and down completely randomly.

Pair Corralation between Longleaf Partners and Longleaf Partners

Assuming the 90 days horizon Longleaf Partners Small Cap is expected to generate about the same return on investment as Longleaf Partners International. But, Longleaf Partners Small Cap is 1.19 times less risky than Longleaf Partners. It trades about -0.09 of its potential returns per unit of risk. Longleaf Partners International is currently generating about -0.07 per unit of risk. If you would invest  1,649  in Longleaf Partners International on January 30, 2024 and sell it today you would lose (24.00) from holding Longleaf Partners International or give up 1.46% of portfolio value over 90 days.

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

Longleaf Partners Small Cap  vs.  Longleaf Partners Internationa

Longleaf Partners Small

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Longleaf Partners Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Longleaf Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Longleaf Partners

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Longleaf Partners International are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Longleaf Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Longleaf Partners and Longleaf Partners

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

The idea behind Longleaf Partners Small Cap and Longleaf Partners International 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 Global Correlations module to find global opportunities by holding instruments from different markets.