Correlation Between Baron Real and Hennessy Large

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

By analyzing existing cross correlation between Baron Real Estate and Hennessy Large Cap, you can compare the effects of market volatilities on Baron Real and Hennessy Large 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 Baron Real with a short position of Hennessy Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baron Real and Hennessy Large.

Diversification Opportunities for Baron Real and Hennessy Large

0.8

Correlation Coefficient

Baron Real  Hennessy Large

Very poor diversification

The 3 months correlation between Baron and Hennessy is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Baron Real Estate and Hennessy Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Large Cap and Baron Real 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 Baron Real Estate are associated (or correlated) with Hennessy Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Large Cap has no effect on the direction of Baron Real i.e., Baron Real and Hennessy Large go up and down completely randomly.

Pair Corralation between Baron Real and Hennessy Large

Assuming the 90 days horizon Baron Real is expected to generate 3.01 times less return on investment than Hennessy Large. In addition to that, Baron Real is 1.15 times more volatile than Hennessy Large Cap. It trades about 0.01 of its total potential returns per unit of risk. Hennessy Large Cap is currently generating about 0.05 per unit of volatility. If you would invest  3,057  in Hennessy Large Cap on September 15, 2024 and sell it today you would earn a total of  24.00  from holding Hennessy Large Cap or generate 0.79% return on investment over 90 days.

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

Baron Real Estate  vs.  Hennessy Large Cap

Baron Real Estate

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Real Estate are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Baron Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hennessy Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Hennessy Large showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baron Real and Hennessy Large

The main advantage of trading using opposite Baron Real and Hennessy Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baron Real position performs unexpectedly, Hennessy Large 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 Large will offset losses from the drop in Hennessy Large's long position.

The idea behind Baron Real Estate and Hennessy Large Cap 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 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.