Correlation Between Hennessy Capital and Springwater Special
Can any of the company-specific risk be diversified away by investing in both Hennessy Capital and Springwater Special 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 Capital and Springwater Special into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hennessy Capital Investment and Springwater Special Situations, you can compare the effects of market volatilities on Hennessy Capital and Springwater Special 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 Capital with a short position of Springwater Special. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Capital and Springwater Special.
Diversification Opportunities for Hennessy Capital and Springwater Special
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Hennessy and Springwater is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Capital Investment and Springwater Special Situations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Springwater Special and Hennessy Capital 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 Capital Investment are associated (or correlated) with Springwater Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Springwater Special has no effect on the direction of Hennessy Capital i.e., Hennessy Capital and Springwater Special go up and down completely randomly.
Pair Corralation between Hennessy Capital and Springwater Special
Assuming the 90 days horizon Hennessy Capital Investment is expected to generate 2.5 times more return on investment than Springwater Special. However, Hennessy Capital is 2.5 times more volatile than Springwater Special Situations. It trades about 0.13 of its potential returns per unit of risk. Springwater Special Situations is currently generating about 0.2 per unit of risk. If you would invest 10.00 in Hennessy Capital Investment on September 1, 2024 and sell it today you would earn a total of 2.00 from holding Hennessy Capital Investment or generate 20.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 6.51% |
| Values | Daily Returns |
Hennessy Capital Investment vs. Springwater Special Situations
Performance |
| Timeline |
| Hennessy Capital Inv |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
| Springwater Special |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Hennessy Capital and Springwater Special Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hennessy Capital and Springwater Special
The main advantage of trading using opposite Hennessy Capital and Springwater Special positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hennessy Capital position performs unexpectedly, Springwater Special 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 Springwater Special will offset losses from the drop in Springwater Special's long position.The idea behind Hennessy Capital Investment and Springwater Special Situations 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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