Correlation Between Hennessy Nerstone and Ultramid Cap

Can any of the company-specific risk be diversified away by investing in both Hennessy Nerstone and Ultramid 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 Nerstone and Ultramid Cap 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 Ultramid Cap Profund Ultramid Cap, you can compare the effects of market volatilities on Hennessy Nerstone and Ultramid 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 Nerstone with a short position of Ultramid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Nerstone and Ultramid Cap.

Diversification Opportunities for Hennessy Nerstone and Ultramid Cap

0.7

Correlation Coefficient

Hennessy Nerstone  Ultramid Cap

Poor diversification

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

Pair Corralation between Hennessy Nerstone and Ultramid Cap

Assuming the 90 days horizon Hennessy Nerstone is expected to generate 1.35 times less return on investment than Ultramid Cap. But when comparing it to its historical volatility, Hennessy Nerstone Mid is 1.26 times less risky than Ultramid Cap. It trades about 0.06 of its potential returns per unit of risk. Ultramid Cap Profund Ultramid Cap is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,369  in Ultramid Cap Profund Ultramid Cap on September 13, 2024 and sell it today you would earn a total of  1,488  from holding Ultramid Cap Profund Ultramid Cap or generate 34.06% 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.  Ultramid Cap Profund Ultramid

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.

Ultramid Cap Profund

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultramid Cap Profund Ultramid Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultramid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hennessy Nerstone and Ultramid Cap

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

The idea behind Hennessy Nerstone Mid and Ultramid Cap Profund Ultramid 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.