Correlation Between Hennessy Capital and Visa

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

By analyzing existing cross correlation between Hennessy Capital Investment and Visa Class A, you can compare the effects of market volatilities on Hennessy Capital and Visa 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 Hennessy Capital with a short position of Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Capital and Visa.

Diversification Opportunities for Hennessy Capital and Visa

0.3

Correlation Coefficient

Hennessy Capital  Visa

Weak diversification

The 3 months correlation between Hennessy and Visa is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Capital Investment and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A and Hennessy Capital 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 Hennessy Capital Investment are associated (or correlated) with Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of Hennessy Capital i.e., Hennessy Capital and Visa go up and down completely randomly.

Pair Corralation between Hennessy Capital and Visa

Assuming the 90 days horizon Hennessy Capital Investment is expected to generate 9.25 times more return on investment than Visa. However, Hennessy Capital is 9.25 times more volatile than Visa Class A. It trades about 0.17 of its potential returns per unit of risk. Visa Class A is currently generating about 0.11 per unit of risk. If you would invest  7.00  in Hennessy Capital Investment on September 17, 2024 and sell it today you would earn a total of  4.00  from holding Hennessy Capital Investment or generate 57.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	50.77%
Values	Daily Returns

Hennessy Capital Investment  vs.  Visa Class A

Hennessy Capital Inv

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Capital Investment are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal forward indicators, Hennessy Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hennessy Capital and Visa

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

The idea behind Hennessy Capital Investment and Visa Class A 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.