Correlation Between Hennessy Nerstone and Hennessy Focus
Can any of the company-specific risk be diversified away by investing in both Hennessy Nerstone and Hennessy Focus 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 Nerstone and Hennessy Focus into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hennessy Nerstone Large and Hennessy Focus Fund, you can compare the effects of market volatilities on Hennessy Nerstone and Hennessy Focus 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 Nerstone with a short position of Hennessy Focus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Nerstone and Hennessy Focus.
Diversification Opportunities for Hennessy Nerstone and Hennessy Focus
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hennessy and Hennessy is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Nerstone Large and Hennessy Focus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Focus and Hennessy Nerstone 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 Nerstone Large are associated (or correlated) with Hennessy Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Focus has no effect on the direction of Hennessy Nerstone i.e., Hennessy Nerstone and Hennessy Focus go up and down completely randomly.
Pair Corralation between Hennessy Nerstone and Hennessy Focus
Assuming the 90 days horizon Hennessy Nerstone is expected to generate 1.47 times less return on investment than Hennessy Focus. But when comparing it to its historical volatility, Hennessy Nerstone Large is 1.45 times less risky than Hennessy Focus. It trades about 0.1 of its potential returns per unit of risk. Hennessy Focus Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,249 in Hennessy Focus Fund on September 3, 2024 and sell it today you would earn a total of 1,369 from holding Hennessy Focus Fund or generate 32.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hennessy Nerstone Large vs. Hennessy Focus Fund
Performance |
| Timeline |
| Hennessy Nerstone Large |
| Hennessy Focus |
Hennessy Nerstone and Hennessy Focus Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hennessy Nerstone and Hennessy Focus
The main advantage of trading using opposite Hennessy Nerstone and Hennessy Focus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hennessy Nerstone position performs unexpectedly, Hennessy Focus 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 Focus will offset losses from the drop in Hennessy Focus' long position.The idea behind Hennessy Nerstone Large and Hennessy Focus Fund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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