Correlation Between Hennessy Focus and Emerald Banking

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

Diversification Opportunities for Hennessy Focus and Emerald Banking

0.62

Correlation Coefficient

Hennessy Focus  Emerald Banking

Poor diversification

The 3 months correlation between HENNESSY and Emerald is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Focus Fund and Emerald Banking And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerald Banking And 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 Emerald Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerald Banking And has no effect on the direction of Hennessy Focus i.e., Hennessy Focus and Emerald Banking go up and down completely randomly.

Pair Corralation between Hennessy Focus and Emerald Banking

Assuming the 90 days horizon Hennessy Focus Fund is expected to generate 0.95 times more return on investment than Emerald Banking. However, Hennessy Focus Fund is 1.05 times less risky than Emerald Banking. It trades about -0.05 of its potential returns per unit of risk. Emerald Banking And is currently generating about -0.11 per unit of risk. If you would invest  4,610  in Hennessy Focus Fund on December 4, 2024 and sell it today you would lose (210.00) from holding Hennessy Focus Fund or give up 4.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Hennessy Focus Fund  vs.  Emerald Banking And

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

Emerald Banking And

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emerald Banking And has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and 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 Emerald Banking

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

The idea behind Hennessy Focus Fund and Emerald Banking And 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.