Correlation Between Hennessy Small and Ultramid Cap

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

Diversification Opportunities for Hennessy Small and Ultramid Cap

0.79

Correlation Coefficient

Hennessy Small  Ultramid Cap

Poor diversification

The 3 months correlation between Hennessy and Ultramid is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Small Cap and Ultramid Cap Profund Ultramid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultramid Cap Profund 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 Ultramid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultramid Cap Profund has no effect on the direction of Hennessy Small i.e., Hennessy Small and Ultramid Cap go up and down completely randomly.

Pair Corralation between Hennessy Small and Ultramid Cap

Assuming the 90 days horizon Hennessy Small Cap is expected to generate 0.67 times more return on investment than Ultramid Cap. However, Hennessy Small Cap is 1.49 times less risky than Ultramid Cap. It trades about -0.07 of its potential returns per unit of risk. Ultramid Cap Profund Ultramid Cap is currently generating about -0.1 per unit of risk. If you would invest  2,693  in Hennessy Small Cap on December 30, 2024 and sell it today you would lose (170.00) from holding Hennessy Small Cap or give up 6.31% of portfolio value over 90 days.

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

Hennessy Small Cap  vs.  Ultramid Cap Profund Ultramid

Hennessy Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Hennessy Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultramid Cap Profund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ultramid Cap Profund Ultramid Cap 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Hennessy Small and Ultramid Cap

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

The idea behind Hennessy Small Cap and Ultramid Cap Profund Ultramid 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .