Correlation Between Hennessy Nerstone and Hennessy Small

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

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

Diversification Opportunities for Hennessy Nerstone and Hennessy Small

0.45

Correlation Coefficient

Hennessy Nerstone  Hennessy Small

Very weak diversification

The 3 months correlation between Hennessy and Hennessy is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Nerstone Large and Hennessy Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Small Cap and Hennessy Nerstone 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 Large are associated (or correlated) with Hennessy Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Small Cap has no effect on the direction of Hennessy Nerstone i.e., Hennessy Nerstone and Hennessy Small go up and down completely randomly.

Pair Corralation between Hennessy Nerstone and Hennessy Small

Assuming the 90 days horizon Hennessy Nerstone Large is expected to under-perform the Hennessy Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Hennessy Nerstone Large is 2.65 times less risky than Hennessy Small. The mutual fund trades about -0.15 of its potential returns per unit of risk. The Hennessy Small Cap is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,559  in Hennessy Small Cap on September 29, 2024 and sell it today you would lose (45.00) from holding Hennessy Small Cap or give up 2.89% of portfolio value over 90 days.

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

Hennessy Nerstone Large  vs.  Hennessy Small Cap

Hennessy Nerstone Large

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hennessy Nerstone Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Hennessy Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hennessy Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Hennessy Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hennessy Nerstone and Hennessy Small

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

The idea behind Hennessy Nerstone Large and Hennessy Small Cap 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.