Correlation Between Hennessy Japan and Emerald Growth

Can any of the company-specific risk be diversified away by investing in both Hennessy Japan and Emerald Growth 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 Emerald Growth 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 Emerald Growth Fund, you can compare the effects of market volatilities on Hennessy Japan and Emerald Growth 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 Emerald Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Japan and Emerald Growth.

Diversification Opportunities for Hennessy Japan and Emerald Growth

0.44

Correlation Coefficient

Hennessy Japan  Emerald Growth

Very weak diversification

The 3 months correlation between Hennessy and Emerald is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Japan Small and Emerald Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerald Growth 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 Emerald Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerald Growth has no effect on the direction of Hennessy Japan i.e., Hennessy Japan and Emerald Growth go up and down completely randomly.

Pair Corralation between Hennessy Japan and Emerald Growth

Assuming the 90 days horizon Hennessy Japan Small is expected to generate 0.25 times more return on investment than Emerald Growth. However, Hennessy Japan Small is 4.0 times less risky than Emerald Growth. It trades about -0.33 of its potential returns per unit of risk. Emerald Growth Fund is currently generating about -0.18 per unit of risk. If you would invest  1,739  in Hennessy Japan Small on October 9, 2024 and sell it today you would lose (73.00) from holding Hennessy Japan Small or give up 4.2% of portfolio value over 90 days.

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

Hennessy Japan Small  vs.  Emerald Growth Fund

Hennessy Japan Small

Risk-Adjusted Performance

0 of 100

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 forward indicators, Hennessy Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerald Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerald Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Emerald Growth 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 Emerald Growth

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

The idea behind Hennessy Japan Small and Emerald Growth Fund 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.