Correlation Between Small Capitalization and Akre Focus

Can any of the company-specific risk be diversified away by investing in both Small Capitalization 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 Capitalization 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 Capitalization Portfolio and Akre Focus Fund, you can compare the effects of market volatilities on Small Capitalization 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 Capitalization with a short position of Akre Focus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Akre Focus.

Diversification Opportunities for Small Capitalization and Akre Focus

0.47

Correlation Coefficient

Small Capitalization  Akre Focus

Very weak diversification

The 3 months correlation between Small and Akre is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio 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 Capitalization 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 Capitalization Portfolio 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 Capitalization i.e., Small Capitalization and Akre Focus go up and down completely randomly.

Pair Corralation between Small Capitalization and Akre Focus

Assuming the 90 days horizon Small Capitalization Portfolio is expected to under-perform the Akre Focus. In addition to that, Small Capitalization is 9.47 times more volatile than Akre Focus Fund. It trades about -0.1 of its total potential returns per unit of risk. Akre Focus Fund is currently generating about 0.0 per unit of volatility. If you would invest  6,994  in Akre Focus Fund on September 12, 2024 and sell it today you would lose (3.00) from holding Akre Focus Fund or give up 0.04% of portfolio value over 90 days.

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

Small Capitalization Portfolio  vs.  Akre Focus Fund

Small Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Capitalization Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

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 Capitalization and Akre Focus

The main advantage of trading using opposite Small Capitalization and Akre Focus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Capitalization 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 Capitalization Portfolio 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.