Correlation Between Hennessy Cornerstone and Applied Finance

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

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

Diversification Opportunities for Hennessy Cornerstone and Applied Finance

0.95

Correlation Coefficient

Hennessy Cornerstone  Applied Finance

Almost no diversification

The 3 months correlation between Hennessy and Applied is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Nerstone Mid and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer and Hennessy Cornerstone 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 Nerstone Mid are associated (or correlated) with Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Hennessy Cornerstone i.e., Hennessy Cornerstone and Applied Finance go up and down completely randomly.

Pair Corralation between Hennessy Cornerstone and Applied Finance

Assuming the 90 days horizon Hennessy Nerstone Mid is expected to generate 0.81 times more return on investment than Applied Finance. However, Hennessy Nerstone Mid is 1.24 times less risky than Applied Finance. It trades about 0.31 of its potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.2 per unit of risk. If you would invest  2,661  in Hennessy Nerstone Mid on August 31, 2024 and sell it today you would earn a total of  218.00  from holding Hennessy Nerstone Mid or generate 8.19% return on investment over 90 days.

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

Hennessy Nerstone Mid  vs.  Applied Finance Explorer

Hennessy Nerstone Mid

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Nerstone Mid are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Hennessy Cornerstone showed solid returns over the last few months and may actually be approaching a breakup point.

Applied Finance Explorer

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Finance Explorer are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Applied Finance may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Hennessy Cornerstone and Applied Finance

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

The idea behind Hennessy Nerstone Mid and Applied Finance Explorer 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.