Correlation Between Hennessy and Optimum Large

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

Diversification Opportunities for Hennessy and Optimum Large

0.81

Correlation Coefficient

Hennessy  Optimum Large

Very poor diversification

The 3 months correlation between Hennessy and Optimum is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Bp Energy and Optimum Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Large Cap 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 Optimum Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Large Cap has no effect on the direction of Hennessy i.e., Hennessy and Optimum Large go up and down completely randomly.

Pair Corralation between Hennessy and Optimum Large

Assuming the 90 days horizon Hennessy is expected to generate 1.01 times less return on investment than Optimum Large. In addition to that, Hennessy is 1.2 times more volatile than Optimum Large Cap. It trades about 0.15 of its total potential returns per unit of risk. Optimum Large Cap is currently generating about 0.18 per unit of volatility. If you would invest  1,385  in Optimum Large Cap on September 2, 2024 and sell it today you would earn a total of  159.00  from holding Optimum Large Cap or generate 11.48% return on investment over 90 days.

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

Hennessy Bp Energy  vs.  Optimum Large Cap

Hennessy Bp Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Bp Energy are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hennessy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Optimum Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optimum Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Optimum Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hennessy and Optimum Large

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

The idea behind Hennessy Bp Energy and Optimum Large Cap 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.