Correlation Between Hennessy Small and Hennessy Focus

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

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

Diversification Opportunities for Hennessy Small and Hennessy Focus

0.07

Correlation Coefficient

Hennessy Small  Hennessy Focus

Significant diversification

The 3 months correlation between Hennessy and Hennessy is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Small Cap and Hennessy Focus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Focus and Hennessy Small 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 Small Cap are associated (or correlated) with Hennessy Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Focus has no effect on the direction of Hennessy Small i.e., Hennessy Small and Hennessy Focus go up and down completely randomly.

Pair Corralation between Hennessy Small and Hennessy Focus

Assuming the 90 days horizon Hennessy Small Cap is expected to generate 0.45 times more return on investment than Hennessy Focus. However, Hennessy Small Cap is 2.2 times less risky than Hennessy Focus. It trades about -0.14 of its potential returns per unit of risk. Hennessy Focus Fund is currently generating about -0.21 per unit of risk. If you would invest  3,107  in Hennessy Small Cap on September 15, 2024 and sell it today you would lose (131.00) from holding Hennessy Small Cap or give up 4.22% of portfolio value over 90 days.

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

Hennessy Small Cap  vs.  Hennessy Focus Fund

Hennessy Small Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Hennessy Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hennessy Focus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hennessy Focus Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Hennessy Small and Hennessy Focus

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

The idea behind Hennessy Small Cap and Hennessy Focus 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.

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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.