Correlation Between Hennessy Cornerstone and Western Asset

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

Diversification Opportunities for Hennessy Cornerstone and Western Asset

-0.75

Correlation Coefficient

Hennessy Cornerstone  Western Asset

Pay attention - limited upside

The 3 months correlation between Hennessy and Western is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Nerstone Mid and Western Asset E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset E and Hennessy Cornerstone 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset E has no effect on the direction of Hennessy Cornerstone i.e., Hennessy Cornerstone and Western Asset go up and down completely randomly.

Pair Corralation between Hennessy Cornerstone and Western Asset

Assuming the 90 days horizon Hennessy Nerstone Mid is expected to under-perform the Western Asset. In addition to that, Hennessy Cornerstone is 3.78 times more volatile than Western Asset E. It trades about -0.13 of its total potential returns per unit of risk. Western Asset E is currently generating about 0.13 per unit of volatility. If you would invest  1,029  in Western Asset E on December 30, 2024 and sell it today you would earn a total of  26.00  from holding Western Asset E or generate 2.53% return on investment over 90 days.

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

Hennessy Nerstone Mid  vs.  Western Asset E

Hennessy Nerstone Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Nerstone Mid 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.

Western Asset E

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset E are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Western Asset 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 Cornerstone and Western Asset

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

The idea behind Hennessy Nerstone Mid and Western Asset 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.