Correlation Between Technology Ultrasector and Hennessy Technology
Can any of the company-specific risk be diversified away by investing in both Technology Ultrasector and Hennessy Technology 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 Technology Ultrasector and Hennessy Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Technology Ultrasector Profund and Hennessy Technology Fund, you can compare the effects of market volatilities on Technology Ultrasector and Hennessy Technology 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 Technology Ultrasector with a short position of Hennessy Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Ultrasector and Hennessy Technology.
Diversification Opportunities for Technology Ultrasector and Hennessy Technology
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Technology and Hennessy is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Technology Ultrasector Profund and Hennessy Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Technology and Technology 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 Technology Ultrasector Profund are associated (or correlated) with Hennessy Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Technology has no effect on the direction of Technology Ultrasector i.e., Technology Ultrasector and Hennessy Technology go up and down completely randomly.
Pair Corralation between Technology Ultrasector and Hennessy Technology
Assuming the 90 days horizon Technology Ultrasector Profund is expected to generate 1.64 times more return on investment than Hennessy Technology. However, Technology Ultrasector is 1.64 times more volatile than Hennessy Technology Fund. It trades about 0.1 of its potential returns per unit of risk. Hennessy Technology Fund is currently generating about 0.08 per unit of risk. If you would invest 1,418 in Technology Ultrasector Profund on September 4, 2024 and sell it today you would earn a total of 1,780 from holding Technology Ultrasector Profund or generate 125.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Technology Ultrasector Profund vs. Hennessy Technology Fund
Performance |
| Timeline |
| Technology Ultrasector |
| Hennessy Technology |
Technology Ultrasector and Hennessy Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Technology Ultrasector and Hennessy Technology
The main advantage of trading using opposite Technology Ultrasector and Hennessy Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology Ultrasector position performs unexpectedly, Hennessy Technology 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 Technology will offset losses from the drop in Hennessy Technology's long position.The idea behind Technology Ultrasector Profund and Hennessy Technology 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.
| Hennessy Technology vs. Black Oak Emerging | Hennessy Technology vs. Hennessy Large Cap | Hennessy Technology vs. Hennessy Japan Fund | Hennessy Technology vs. Hennessy Small Cap |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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