Correlation Between Hennessy Focus and Legg Mason

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

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

Diversification Opportunities for Hennessy Focus and Legg Mason

0.63

Correlation Coefficient

Hennessy Focus  Legg Mason

Poor diversification

The 3 months correlation between Hennessy and Legg is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Focus Fund and Legg Mason Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Global and Hennessy Focus 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 Hennessy Focus Fund are associated (or correlated) with Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Global has no effect on the direction of Hennessy Focus i.e., Hennessy Focus and Legg Mason go up and down completely randomly.

Pair Corralation between Hennessy Focus and Legg Mason

Assuming the 90 days horizon Hennessy Focus Fund is expected to under-perform the Legg Mason. In addition to that, Hennessy Focus is 9.57 times more volatile than Legg Mason Global. It trades about -0.13 of its total potential returns per unit of risk. Legg Mason Global is currently generating about 0.07 per unit of volatility. If you would invest  928.00  in Legg Mason Global on December 4, 2024 and sell it today you would earn a total of  9.00  from holding Legg Mason Global or generate 0.97% return on investment over 90 days.

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

Hennessy Focus Fund  vs.  Legg Mason Global

Hennessy Focus

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Focus Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Legg Mason Global

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Global are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hennessy Focus and Legg Mason

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

The idea behind Hennessy Focus Fund and Legg Mason Global 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..