Correlation Between Energy Basic and Hennessy
Can any of the company-specific risk be diversified away by investing in both Energy Basic and Hennessy 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 Energy Basic and Hennessy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Basic Materials and Hennessy Bp Energy, you can compare the effects of market volatilities on Energy Basic and Hennessy 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 Energy Basic with a short position of Hennessy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Hennessy.
Diversification Opportunities for Energy Basic and Hennessy
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Energy and Hennessy is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Hennessy Bp Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Bp Energy and Energy Basic 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 Energy Basic Materials are associated (or correlated) with Hennessy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Bp Energy has no effect on the direction of Energy Basic i.e., Energy Basic and Hennessy go up and down completely randomly.
Pair Corralation between Energy Basic and Hennessy
Assuming the 90 days horizon Energy Basic Materials is expected to generate 0.81 times more return on investment than Hennessy. However, Energy Basic Materials is 1.24 times less risky than Hennessy. It trades about -0.22 of its potential returns per unit of risk. Hennessy Bp Energy is currently generating about -0.2 per unit of risk. If you would invest 1,347 in Energy Basic Materials on December 13, 2024 and sell it today you would lose (61.00) from holding Energy Basic Materials or give up 4.53% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Basic Materials vs. Hennessy Bp Energy
Performance |
| Timeline |
| Energy Basic Materials |
| Hennessy Bp Energy |
Energy Basic and Hennessy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Basic and Hennessy
The main advantage of trading using opposite Energy Basic and Hennessy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Basic position performs unexpectedly, Hennessy 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 will offset losses from the drop in Hennessy's long position.| Energy Basic vs. Guidemark Large Cap | ||
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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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