Correlation Between Financials Ultrasector and Hennessy Small
Can any of the company-specific risk be diversified away by investing in both Financials Ultrasector 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 Financials Ultrasector and Hennessy Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financials Ultrasector Profund and Hennessy Small Cap, you can compare the effects of market volatilities on Financials Ultrasector 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 Financials Ultrasector with a short position of Hennessy Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Hennessy Small.
Diversification Opportunities for Financials Ultrasector and Hennessy Small
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financials and Hennessy is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund 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 Financials Ultrasector 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 Financials Ultrasector Profund 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 Financials Ultrasector i.e., Financials Ultrasector and Hennessy Small go up and down completely randomly.
Pair Corralation between Financials Ultrasector and Hennessy Small
Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 1.05 times more return on investment than Hennessy Small. However, Financials Ultrasector is 1.05 times more volatile than Hennessy Small Cap. It trades about 0.32 of its potential returns per unit of risk. Hennessy Small Cap is currently generating about 0.19 per unit of risk. If you would invest 4,135 in Financials Ultrasector Profund on November 3, 2024 and sell it today you would earn a total of 412.00 from holding Financials Ultrasector Profund or generate 9.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financials Ultrasector Profund vs. Hennessy Small Cap
Performance |
| Timeline |
| Financials Ultrasector |
| Hennessy Small Cap |
Financials Ultrasector and Hennessy Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financials Ultrasector and Hennessy Small
The main advantage of trading using opposite Financials Ultrasector and Hennessy Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financials Ultrasector 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 Financials Ultrasector Profund 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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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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