Correlation Between Hennessy Japan and Frontier Markets

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

By analyzing existing cross correlation between Hennessy Japan Fund and Frontier Markets Portfolio, you can compare the effects of market volatilities on Hennessy Japan and Frontier Markets 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 Japan with a short position of Frontier Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Japan and Frontier Markets.

Diversification Opportunities for Hennessy Japan and Frontier Markets

0.53

Correlation Coefficient

Hennessy Japan  Frontier Markets

Very weak diversification

The 3 months correlation between Hennessy and Frontier is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Japan Fund and Frontier Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Markets Por and Hennessy Japan 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 Japan Fund are associated (or correlated) with Frontier Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Markets Por has no effect on the direction of Hennessy Japan i.e., Hennessy Japan and Frontier Markets go up and down completely randomly.

Pair Corralation between Hennessy Japan and Frontier Markets

Assuming the 90 days horizon Hennessy Japan Fund is expected to under-perform the Frontier Markets. In addition to that, Hennessy Japan is 1.14 times more volatile than Frontier Markets Portfolio. It trades about -0.28 of its total potential returns per unit of risk. Frontier Markets Portfolio is currently generating about -0.2 per unit of volatility. If you would invest  1,653  in Frontier Markets Portfolio on October 9, 2024 and sell it today you would lose (59.00) from holding Frontier Markets Portfolio or give up 3.57% of portfolio value over 90 days.

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

Hennessy Japan Fund  vs.  Frontier Markets Portfolio

Hennessy Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hennessy Japan Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Frontier Markets Por

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontier Markets Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Frontier Markets 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 Japan and Frontier Markets

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

The idea behind Hennessy Japan Fund and Frontier Markets Portfolio 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.