Correlation Between Hennessy Nerstone and Touchstone Small

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

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

Diversification Opportunities for Hennessy Nerstone and Touchstone Small

0.7

Correlation Coefficient

Hennessy Nerstone  Touchstone Small

Poor diversification

The 3 months correlation between Hennessy and Touchstone is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Nerstone Mid and Touchstone Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Small Cap and Hennessy Nerstone 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 Nerstone Mid are associated (or correlated) with Touchstone Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Small Cap has no effect on the direction of Hennessy Nerstone i.e., Hennessy Nerstone and Touchstone Small go up and down completely randomly.

Pair Corralation between Hennessy Nerstone and Touchstone Small

Assuming the 90 days horizon Hennessy Nerstone Mid is expected to under-perform the Touchstone Small. In addition to that, Hennessy Nerstone is 2.02 times more volatile than Touchstone Small Cap. It trades about -0.01 of its total potential returns per unit of risk. Touchstone Small Cap is currently generating about 0.13 per unit of volatility. If you would invest  3,753  in Touchstone Small Cap on September 13, 2024 and sell it today you would earn a total of  335.00  from holding Touchstone Small Cap or generate 8.93% return on investment over 90 days.

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

Hennessy Nerstone Mid  vs.  Touchstone Small Cap

Hennessy Nerstone Mid

Risk-Adjusted Performance

0 of 100

Weak

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

Touchstone Small Cap

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Touchstone Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hennessy Nerstone and Touchstone Small

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

The idea behind Hennessy Nerstone Mid and Touchstone Small Cap 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.