Correlation Between Small Cap and Akre Focus

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

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

Diversification Opportunities for Small Cap and Akre Focus

0.85

Correlation Coefficient

Small Cap  Akre Focus

Very poor diversification

The 3 months correlation between Small and Akre is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Akre Focus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akre Focus Fund and Small Cap 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 Small Cap Equity are associated (or correlated) with Akre Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akre Focus Fund has no effect on the direction of Small Cap i.e., Small Cap and Akre Focus go up and down completely randomly.

Pair Corralation between Small Cap and Akre Focus

Assuming the 90 days horizon Small Cap Equity is expected to generate 1.51 times more return on investment than Akre Focus. However, Small Cap is 1.51 times more volatile than Akre Focus Fund. It trades about 0.09 of its potential returns per unit of risk. Akre Focus Fund is currently generating about 0.0 per unit of risk. If you would invest  1,779  in Small Cap Equity on September 12, 2024 and sell it today you would earn a total of  128.00  from holding Small Cap Equity or generate 7.2% return on investment over 90 days.

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

Small Cap Equity  vs.  Akre Focus Fund

Small Cap Equity

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Akre Focus Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Cap and Akre Focus

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

The idea behind Small Cap Equity and Akre Focus Fund 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.