Correlation Between ESH Acquisition and Hennessy Capital

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

By analyzing existing cross correlation between ESH Acquisition Corp and Hennessy Capital Investment, you can compare the effects of market volatilities on ESH Acquisition and Hennessy Capital 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 ESH Acquisition with a short position of Hennessy Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESH Acquisition and Hennessy Capital.

Diversification Opportunities for ESH Acquisition and Hennessy Capital

-0.27

Correlation Coefficient

ESH Acquisition  Hennessy Capital

Very good diversification

The 3 months correlation between ESH and Hennessy is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding ESH Acquisition Corp and Hennessy Capital Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Capital Inv and ESH Acquisition 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 ESH Acquisition Corp are associated (or correlated) with Hennessy Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Capital Inv has no effect on the direction of ESH Acquisition i.e., ESH Acquisition and Hennessy Capital go up and down completely randomly.

Pair Corralation between ESH Acquisition and Hennessy Capital

Given the investment horizon of 90 days ESH Acquisition is expected to generate 7.94 times less return on investment than Hennessy Capital. In addition to that, ESH Acquisition is 2.64 times more volatile than Hennessy Capital Investment. It trades about 0.01 of its total potential returns per unit of risk. Hennessy Capital Investment is currently generating about 0.2 per unit of volatility. If you would invest  1,057  in Hennessy Capital Investment on December 28, 2024 and sell it today you would earn a total of  43.00  from holding Hennessy Capital Investment or generate 4.07% return on investment over 90 days.

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

ESH Acquisition Corp  vs.  Hennessy Capital Investment

ESH Acquisition Corp

Risk-Adjusted Performance

Insignificant

Over the last 90 days ESH Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, ESH Acquisition is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Hennessy Capital Inv

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Capital Investment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Hennessy Capital is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ESH Acquisition and Hennessy Capital

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

The idea behind ESH Acquisition Corp and Hennessy Capital Investment 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.