Correlation Between Nicholas Equity and Hennessy Cornerstone

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

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

Diversification Opportunities for Nicholas Equity and Hennessy Cornerstone

0.83

Correlation Coefficient

Nicholas Equity  Hennessy Cornerstone

Very poor diversification

The 3 months correlation between Nicholas and Hennessy is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Nicholas Equity Income 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 Nicholas Equity 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 Nicholas Equity Income 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 Nicholas Equity i.e., Nicholas Equity and Hennessy Cornerstone go up and down completely randomly.

Pair Corralation between Nicholas Equity and Hennessy Cornerstone

Assuming the 90 days horizon Nicholas Equity is expected to generate 2.65 times less return on investment than Hennessy Cornerstone. But when comparing it to its historical volatility, Nicholas Equity Income is 2.32 times less risky than Hennessy Cornerstone. It trades about 0.29 of its potential returns per unit of risk. Hennessy Nerstone Mid is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  2,661  in Hennessy Nerstone Mid on September 4, 2024 and sell it today you would earn a total of  232.00  from holding Hennessy Nerstone Mid or generate 8.72% return on investment over 90 days.

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

Nicholas Equity Income  vs.  Hennessy Nerstone Mid

Nicholas Equity Income

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nicholas Equity Income are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Nicholas Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hennessy Nerstone Mid

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Nerstone Mid are ranked lower than 19 (%) 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.

Pair Trading with Nicholas Equity and Hennessy Cornerstone

The main advantage of trading using opposite Nicholas Equity and Hennessy Cornerstone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nicholas Equity 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 Nicholas Equity Income 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.

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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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.