Correlation Between Hennessy Japan and Leland Thomson

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

By analyzing existing cross correlation between Hennessy Japan Small and Leland Thomson Reuters, you can compare the effects of market volatilities on Hennessy Japan and Leland Thomson 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 Leland Thomson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Japan and Leland Thomson.

Diversification Opportunities for Hennessy Japan and Leland Thomson

0.6

Correlation Coefficient

Hennessy Japan  Leland Thomson

Poor diversification

The 3 months correlation between Hennessy and Leland is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Japan Small and Leland Thomson Reuters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leland Thomson Reuters 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 Small are associated (or correlated) with Leland Thomson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leland Thomson Reuters has no effect on the direction of Hennessy Japan i.e., Hennessy Japan and Leland Thomson go up and down completely randomly.

Pair Corralation between Hennessy Japan and Leland Thomson

Assuming the 90 days horizon Hennessy Japan Small is expected to generate 0.36 times more return on investment than Leland Thomson. However, Hennessy Japan Small is 2.78 times less risky than Leland Thomson. It trades about 0.12 of its potential returns per unit of risk. Leland Thomson Reuters is currently generating about -0.21 per unit of risk. If you would invest  1,699  in Hennessy Japan Small on December 5, 2024 and sell it today you would earn a total of  27.00  from holding Hennessy Japan Small or generate 1.59% return on investment over 90 days.

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

Hennessy Japan Small  vs.  Leland Thomson Reuters

Hennessy Japan Small

Risk-Adjusted Performance

Very Weak

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

Leland Thomson Reuters

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leland Thomson Reuters 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.

Pair Trading with Hennessy Japan and Leland Thomson

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

The idea behind Hennessy Japan Small and Leland Thomson Reuters 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.