Correlation Between Small-company Stock and Hennessy Cornerstone

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

By analyzing existing cross correlation between Small Company Stock Fund and Hennessy Nerstone Mid, you can compare the effects of market volatilities on Small-company Stock and Hennessy Cornerstone 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 Small-company Stock with a short position of Hennessy Cornerstone. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-company Stock and Hennessy Cornerstone.

Diversification Opportunities for Small-company Stock and Hennessy Cornerstone

0.99

Correlation Coefficient

Small-company Stock  Hennessy Cornerstone

No risk reduction

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

Pair Corralation between Small-company Stock and Hennessy Cornerstone

Assuming the 90 days horizon Small Company Stock Fund is expected to under-perform the Hennessy Cornerstone. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Company Stock Fund is 1.04 times less risky than Hennessy Cornerstone. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Hennessy Nerstone Mid is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,290  in Hennessy Nerstone Mid on December 27, 2024 and sell it today you would lose (173.00) from holding Hennessy Nerstone Mid or give up 7.55% of portfolio value over 90 days.

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

Small Company Stock Fund  vs.  Hennessy Nerstone Mid

Small-company Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Company Stock 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.

Hennessy Nerstone Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Nerstone Mid has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental 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 Small-company Stock and Hennessy Cornerstone

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

The idea behind Small Company Stock Fund and Hennessy Nerstone Mid 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.