Can any of the company-specific risk be diversified away by investing in both AKA Brands and Etsy 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 AKA Brands and Etsy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AKA Brands Holding and Etsy Inc, you can compare the effects of market volatilities on AKA Brands and Etsy 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 AKA Brands with a short position of Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of AKA Brands and Etsy.
Diversification Opportunities for AKA Brands and Etsy
The 3 months correlation between AKA and Etsy is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding AKA Brands Holding and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc and AKA Brands 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 AKA Brands Holding are associated (or correlated) with Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of AKA Brands i.e., AKA Brands and Etsy go up and down completely randomly.
Considering the 90-day investment horizon AKA Brands Holding is expected to generate 3.26 times more return on investment than Etsy. However, AKA Brands is 3.26 times more volatile than Etsy Inc. It trades about 0.1 of its potential returns per unit of risk. Etsy Inc is currently generating about -0.03 per unit of risk. If you would invest 1,250 in AKA Brands Holding on March 5, 2024 and sell it today you would earn a total of 445.00 from holding AKA Brands Holding or generate 35.6% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in AKA Brands Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward-looking signals, AKA Brands sustained solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Etsy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Etsy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.