Correlation Between First American and Hennessy Nerstone

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

By analyzing existing cross correlation between First American Funds and Hennessy Nerstone Large, you can compare the effects of market volatilities on First American and Hennessy Nerstone 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 First American with a short position of Hennessy Nerstone. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Hennessy Nerstone.

Diversification Opportunities for First American and Hennessy Nerstone

0.65

Correlation Coefficient

First American  Hennessy Nerstone

Poor diversification

The 3 months correlation between First and Hennessy is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Hennessy Nerstone Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Nerstone Large and First American 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 First American Funds are associated (or correlated) with Hennessy Nerstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Nerstone Large has no effect on the direction of First American i.e., First American and Hennessy Nerstone go up and down completely randomly.

Pair Corralation between First American and Hennessy Nerstone

Assuming the 90 days horizon First American is expected to generate 7.8 times less return on investment than Hennessy Nerstone. But when comparing it to its historical volatility, First American Funds is 5.55 times less risky than Hennessy Nerstone. It trades about 0.13 of its potential returns per unit of risk. Hennessy Nerstone Large is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,186  in Hennessy Nerstone Large on September 5, 2024 and sell it today you would earn a total of  95.00  from holding Hennessy Nerstone Large or generate 8.01% return on investment over 90 days.

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

First American Funds  vs.  Hennessy Nerstone Large

First American Funds

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First American Funds are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hennessy Nerstone Large

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Nerstone Large are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hennessy Nerstone may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First American and Hennessy Nerstone

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

The idea behind First American Funds and Hennessy Nerstone Large 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.