Correlation Between First Trust and Hennessy Small
Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and Hennessy Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Specialty and Hennessy Small Cap, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of Hennessy Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Hennessy Small.
Diversification Opportunities for First Trust and Hennessy Small
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between First and Hennessy is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty 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 First Trust 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 First Trust Specialty 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 First Trust i.e., First Trust and Hennessy Small go up and down completely randomly.
Pair Corralation between First Trust and Hennessy Small
Considering the 90-day investment horizon First Trust Specialty is expected to generate 0.86 times more return on investment than Hennessy Small. However, First Trust Specialty is 1.16 times less risky than Hennessy Small. It trades about 0.24 of its potential returns per unit of risk. Hennessy Small Cap is currently generating about 0.03 per unit of risk. If you would invest 415.00 in First Trust Specialty on October 22, 2024 and sell it today you would earn a total of 23.00 from holding First Trust Specialty or generate 5.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Specialty vs. Hennessy Small Cap
Performance |
| Timeline |
| First Trust Specialty |
| Hennessy Small Cap |
First Trust and Hennessy Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Hennessy Small
The main advantage of trading using opposite First Trust and Hennessy Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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.| First Trust vs. MFS High Income | First Trust vs. MFS High Yield | First Trust vs. Blackrock Muniholdings Quality | First Trust vs. MFS Government Markets |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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