Correlation Between GM and Hennessy Japan

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

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

Diversification Opportunities for GM and Hennessy Japan

0.42

Correlation Coefficient

GM  Hennessy Japan

Very weak diversification

The 3 months correlation between GM and Hennessy is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Hennessy Japan Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Japan and GM 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 General Motors 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 has no effect on the direction of GM i.e., GM and Hennessy Japan go up and down completely randomly.

Pair Corralation between GM and Hennessy Japan

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Hennessy Japan. In addition to that, GM is 2.04 times more volatile than Hennessy Japan Fund. It trades about -0.07 of its total potential returns per unit of risk. Hennessy Japan Fund is currently generating about -0.02 per unit of volatility. If you would invest  4,310  in Hennessy Japan Fund on November 20, 2024 and sell it today you would lose (93.00) from holding Hennessy Japan Fund or give up 2.16% of portfolio value over 90 days.

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

General Motors  vs.  Hennessy Japan Fund

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Hennessy Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Japan Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic 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 GM and Hennessy Japan

The main advantage of trading using opposite GM and Hennessy Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Hennessy Japan 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 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.