Correlation Between First American and Hennessy Nerstone
Can any of the company-specific risk be diversified away by investing in both First American 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 First American and Hennessy Nerstone into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First American Funds and Hennessy Nerstone Large, you can compare the effects of market volatilities on First American 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 First American with a short position of Hennessy Nerstone. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Hennessy Nerstone.
Diversification Opportunities for First American and Hennessy Nerstone
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Hennessy is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Hennessy Nerstone Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Nerstone Large and First American 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 American Funds 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 Large has no effect on the direction of First American i.e., First American and Hennessy Nerstone go up and down completely randomly.
Pair Corralation between First American and Hennessy Nerstone
Assuming the 90 days horizon First American Funds is expected to generate 18.33 times more return on investment than Hennessy Nerstone. However, First American is 18.33 times more volatile than Hennessy Nerstone Large. It trades about 0.03 of its potential returns per unit of risk. Hennessy Nerstone Large is currently generating about 0.06 per unit of risk. If you would invest 323.00 in First American Funds on September 12, 2024 and sell it today you would lose (223.00) from holding First American Funds or give up 69.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First American Funds vs. Hennessy Nerstone Large
Performance |
| Timeline |
| First American Funds |
| Hennessy Nerstone Large |
First American and Hennessy Nerstone Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First American and Hennessy Nerstone
The main advantage of trading using opposite First American and Hennessy Nerstone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First American 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.| First American vs. Siit Ultra Short | First American vs. Quantitative Longshort Equity | First American vs. Rbc Short Duration | First American vs. Franklin Federal Limited Term |
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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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