Correlation Between Gmo High and Hennessy

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

By analyzing existing cross correlation between Gmo High Yield and Hennessy Bp Midstream, you can compare the effects of market volatilities on Gmo High and Hennessy 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 Gmo High with a short position of Hennessy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Hennessy.

Diversification Opportunities for Gmo High and Hennessy

0.67

Correlation Coefficient

Gmo High  Hennessy

Poor diversification

The 3 months correlation between Gmo and Hennessy is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Hennessy Bp Midstream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Bp Midstream and Gmo High 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 Gmo High Yield are associated (or correlated) with Hennessy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Bp Midstream has no effect on the direction of Gmo High i.e., Gmo High and Hennessy go up and down completely randomly.

Pair Corralation between Gmo High and Hennessy

Assuming the 90 days horizon Gmo High is expected to generate 1.65 times less return on investment than Hennessy. But when comparing it to its historical volatility, Gmo High Yield is 9.64 times less risky than Hennessy. It trades about 0.29 of its potential returns per unit of risk. Hennessy Bp Midstream is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,334  in Hennessy Bp Midstream on September 15, 2024 and sell it today you would earn a total of  17.00  from holding Hennessy Bp Midstream or generate 1.27% return on investment over 90 days.

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

Gmo High Yield  vs.  Hennessy Bp Midstream

Gmo High Yield

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hennessy Bp Midstream

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Bp Midstream are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Hennessy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gmo High and Hennessy

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

The idea behind Gmo High Yield and Hennessy Bp Midstream 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.