Correlation Between Hennessy Small and Hennessy Nerstone

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

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

Diversification Opportunities for Hennessy Small and Hennessy Nerstone

0.51

Correlation Coefficient

Hennessy Small  Hennessy Nerstone

Very weak diversification

The 3 months correlation between Hennessy and Hennessy is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Small Cap and Hennessy Nerstone Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Nerstone Value and Hennessy Small 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 Small Cap 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 Value has no effect on the direction of Hennessy Small i.e., Hennessy Small and Hennessy Nerstone go up and down completely randomly.

Pair Corralation between Hennessy Small and Hennessy Nerstone

Assuming the 90 days horizon Hennessy Small Cap is expected to generate 3.2 times more return on investment than Hennessy Nerstone. However, Hennessy Small is 3.2 times more volatile than Hennessy Nerstone Value. It trades about -0.01 of its potential returns per unit of risk. Hennessy Nerstone Value is currently generating about -0.15 per unit of risk. 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 Small Cap  vs.  Hennessy Nerstone Value

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.

Hennessy Nerstone Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hennessy Small and Hennessy Nerstone

The main advantage of trading using opposite Hennessy Small and Hennessy Nerstone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hennessy Small 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 Hennessy Small Cap and Hennessy Nerstone Value 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.