Correlation Between Large Cap and Hennessy Cornerstone

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

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

Diversification Opportunities for Large Cap and Hennessy Cornerstone

0.75

Correlation Coefficient

Large Cap  Hennessy Cornerstone

Poor diversification

The 3 months correlation between Large and Hennessy is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap E and Hennessy Nerstone Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Nerstone Mid and Large Cap 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 Large Cap E are associated (or correlated) with Hennessy Cornerstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Nerstone Mid has no effect on the direction of Large Cap i.e., Large Cap and Hennessy Cornerstone go up and down completely randomly.

Pair Corralation between Large Cap and Hennessy Cornerstone

Assuming the 90 days horizon Large Cap E is expected to generate 0.77 times more return on investment than Hennessy Cornerstone. However, Large Cap E is 1.3 times less risky than Hennessy Cornerstone. It trades about -0.07 of its potential returns per unit of risk. Hennessy Nerstone Mid is currently generating about -0.13 per unit of risk. If you would invest  2,036  in Large Cap E on December 30, 2024 and sell it today you would lose (81.00) from holding Large Cap E or give up 3.98% of portfolio value over 90 days.

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

Large Cap E  vs.  Hennessy Nerstone Mid

Large Cap E

Risk-Adjusted Performance

Very Weak

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

Hennessy Nerstone Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Nerstone Mid has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Large Cap and Hennessy Cornerstone

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

The idea behind Large Cap E and Hennessy Nerstone Mid 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.