Correlation Between Invesco Disciplined and Hennessy Focus

Can any of the company-specific risk be diversified away by investing in both Invesco Disciplined 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 Invesco Disciplined and Hennessy Focus into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invesco Disciplined Equity and Hennessy Focus Fund, you can compare the effects of market volatilities on Invesco Disciplined 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 Invesco Disciplined with a short position of Hennessy Focus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Disciplined and Hennessy Focus.

Diversification Opportunities for Invesco Disciplined and Hennessy Focus

0.65

Correlation Coefficient

Invesco Disciplined  Hennessy Focus

Poor diversification

The 3 months correlation between Invesco and Hennessy is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Disciplined Equity and Hennessy Focus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Focus and Invesco Disciplined 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 Invesco Disciplined Equity 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 Invesco Disciplined i.e., Invesco Disciplined and Hennessy Focus go up and down completely randomly.

Pair Corralation between Invesco Disciplined and Hennessy Focus

Assuming the 90 days horizon Invesco Disciplined Equity is expected to under-perform the Hennessy Focus. But the mutual fund apears to be less risky and, when comparing its historical volatility, Invesco Disciplined Equity is 1.69 times less risky than Hennessy Focus. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Hennessy Focus Fund is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,548  in Hennessy Focus Fund on December 29, 2024 and sell it today you would lose (64.00) from holding Hennessy Focus Fund or give up 1.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Invesco Disciplined Equity  vs.  Hennessy Focus Fund

Invesco Disciplined

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Disciplined Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Invesco Disciplined is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hennessy Focus

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Focus Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Hennessy Focus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco Disciplined and Hennessy Focus

The main advantage of trading using opposite Invesco Disciplined and Hennessy Focus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Disciplined 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 Invesco Disciplined Equity 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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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.