Correlation Between Emerald Growth and Hennessy Japan

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

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

Diversification Opportunities for Emerald Growth and Hennessy Japan

0.44

Correlation Coefficient

Emerald Growth  Hennessy Japan

Very weak diversification

The 3 months correlation between Emerald and Hennessy is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Emerald Growth Fund and Hennessy Japan Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Japan Small and Emerald Growth 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 Emerald Growth Fund are associated (or correlated) with Hennessy Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Japan Small has no effect on the direction of Emerald Growth i.e., Emerald Growth and Hennessy Japan go up and down completely randomly.

Pair Corralation between Emerald Growth and Hennessy Japan

Assuming the 90 days horizon Emerald Growth Fund is expected to under-perform the Hennessy Japan. In addition to that, Emerald Growth is 4.0 times more volatile than Hennessy Japan Small. It trades about -0.18 of its total potential returns per unit of risk. Hennessy Japan Small is currently generating about -0.33 per unit of volatility. If you would invest  1,739  in Hennessy Japan Small on October 9, 2024 and sell it today you would lose (73.00) from holding Hennessy Japan Small or give up 4.2% of portfolio value over 90 days.

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

Emerald Growth Fund  vs.  Hennessy Japan Small

Emerald Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hennessy Japan Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Emerald Growth and Hennessy Japan

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

The idea behind Emerald Growth Fund and Hennessy Japan Small 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..