Correlation Between Hennessy and Franklin Natural

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

By analyzing existing cross correlation between Hennessy Bp Energy and Franklin Natural Resources, you can compare the effects of market volatilities on Hennessy and Franklin Natural 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 with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy and Franklin Natural.

Diversification Opportunities for Hennessy and Franklin Natural

0.99

Correlation Coefficient

Hennessy  Franklin Natural

No risk reduction

The 3 months correlation between Hennessy and Franklin is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Bp Energy and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Hennessy 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 Bp Energy are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Hennessy i.e., Hennessy and Franklin Natural go up and down completely randomly.

Pair Corralation between Hennessy and Franklin Natural

Assuming the 90 days horizon Hennessy Bp Energy is expected to generate 1.07 times more return on investment than Franklin Natural. However, Hennessy is 1.07 times more volatile than Franklin Natural Resources. It trades about 0.09 of its potential returns per unit of risk. Franklin Natural Resources is currently generating about 0.09 per unit of risk. If you would invest  2,691  in Hennessy Bp Energy on December 31, 2024 and sell it today you would earn a total of  155.00  from holding Hennessy Bp Energy or generate 5.76% return on investment over 90 days.

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

Hennessy Bp Energy  vs.  Franklin Natural Resources

Hennessy Bp Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Bp Energy are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Hennessy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Natural Res

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Natural Resources are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Natural 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 and Franklin Natural

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

The idea behind Hennessy Bp Energy and Franklin Natural Resources 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.