Correlation Between Smead Value and Akre Focus

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Can any of the company-specific risk be diversified away by investing in both Smead Value 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 Smead Value and Akre Focus into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smead Value Fund and Akre Focus Fund, you can compare the effects of market volatilities on Smead Value 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 Smead Value with a short position of Akre Focus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smead Value and Akre Focus.

Diversification Opportunities for Smead Value and Akre Focus

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Smead and Akre is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Smead Value Fund 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 Smead Value 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 Smead Value Fund 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 Smead Value i.e., Smead Value and Akre Focus go up and down completely randomly.

Pair Corralation between Smead Value and Akre Focus

Assuming the 90 days horizon Smead Value is expected to generate 1.29 times less return on investment than Akre Focus. In addition to that, Smead Value is 1.06 times more volatile than Akre Focus Fund. It trades about 0.07 of its total potential returns per unit of risk. Akre Focus Fund is currently generating about 0.09 per unit of volatility. If you would invest  5,411  in Akre Focus Fund on September 12, 2024 and sell it today you would earn a total of  1,580  from holding Akre Focus Fund or generate 29.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.7%
ValuesDaily Returns

Smead Value Fund  vs.  Akre Focus Fund

 Performance 
       Timeline  
Smead Value Fund 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Smead Value Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Smead Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Akre Focus Fund 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Smead Value and Akre Focus Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Smead Value and Akre Focus

The main advantage of trading using opposite Smead Value and Akre Focus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smead Value 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 Smead Value Fund 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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