Correlation Between Hennessy Large and Hennessy Cornerstone

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

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

Diversification Opportunities for Hennessy Large and Hennessy Cornerstone

0.88

Correlation Coefficient

Hennessy Large  Hennessy Cornerstone

Very poor diversification

The 3 months correlation between Hennessy and Hennessy is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Large Cap and Hennessy Nerstone Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Nerstone Mid and Hennessy Large 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 Large Cap are associated (or correlated) with Hennessy Cornerstone. 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 Mid has no effect on the direction of Hennessy Large i.e., Hennessy Large and Hennessy Cornerstone go up and down completely randomly.

Pair Corralation between Hennessy Large and Hennessy Cornerstone

Assuming the 90 days horizon Hennessy Large Cap is expected to generate 1.49 times more return on investment than Hennessy Cornerstone. However, Hennessy Large is 1.49 times more volatile than Hennessy Nerstone Mid. It trades about 0.17 of its potential returns per unit of risk. Hennessy Nerstone Mid is currently generating about 0.15 per unit of risk. If you would invest  2,636  in Hennessy Large Cap on August 30, 2024 and sell it today you would earn a total of  538.00  from holding Hennessy Large Cap or generate 20.41% return on investment over 90 days.

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

Hennessy Large Cap  vs.  Hennessy Nerstone Mid

Hennessy Large Cap

Risk-Adjusted Performance

13 of 100

Good

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

Hennessy Nerstone Mid

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Nerstone Mid are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Hennessy Cornerstone may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Hennessy Large and Hennessy Cornerstone

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

The idea behind Hennessy Large Cap and Hennessy Nerstone Mid 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 CEOs Directory module to screen CEOs from public companies around the world.