Correlation Between Hennessy Focus and Zacks Small-cap

Can any of the company-specific risk be diversified away by investing in both Hennessy Focus and Zacks Small-cap 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 Zacks Small-cap 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 Zacks Small Cap E, you can compare the effects of market volatilities on Hennessy Focus and Zacks Small-cap 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 Zacks Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Focus and Zacks Small-cap.

Diversification Opportunities for Hennessy Focus and Zacks Small-cap

0.56

Correlation Coefficient

Hennessy Focus  Zacks Small-cap

Very weak diversification

The 3 months correlation between Hennessy and Zacks is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Focus Fund and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small Cap 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 Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of Hennessy Focus i.e., Hennessy Focus and Zacks Small-cap go up and down completely randomly.

Pair Corralation between Hennessy Focus and Zacks Small-cap

Assuming the 90 days horizon Hennessy Focus Fund is expected to generate 1.24 times more return on investment than Zacks Small-cap. However, Hennessy Focus is 1.24 times more volatile than Zacks Small Cap E. It trades about -0.01 of its potential returns per unit of risk. Zacks Small Cap E is currently generating about -0.11 per unit of risk. If you would invest  4,548  in Hennessy Focus Fund on December 29, 2024 and sell it today you would lose (64.00) from holding Hennessy Focus Fund or give up 1.41% of portfolio value over 90 days.

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

Hennessy Focus Fund  vs.  Zacks Small Cap E

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 fairly strong forward indicators, Hennessy Focus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Zacks Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zacks Small Cap E 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 Hennessy Focus and Zacks Small-cap

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

The idea behind Hennessy Focus Fund and Zacks Small Cap E 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.