Correlation Between Hennessy Technology and Long Term

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

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

Diversification Opportunities for Hennessy Technology and Long Term

0.66

Correlation Coefficient

Hennessy Technology  Long Term

Poor diversification

The 3 months correlation between Hennessy and Long is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Technology Fund and The Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term and Hennessy Technology 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 Technology Fund are associated (or correlated) with Long Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term has no effect on the direction of Hennessy Technology i.e., Hennessy Technology and Long Term go up and down completely randomly.

Pair Corralation between Hennessy Technology and Long Term

Assuming the 90 days horizon Hennessy Technology Fund is expected to under-perform the Long Term. But the mutual fund apears to be less risky and, when comparing its historical volatility, Hennessy Technology Fund is 1.28 times less risky than Long Term. The mutual fund trades about -0.2 of its potential returns per unit of risk. The The Long Term is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  3,571  in The Long Term on October 7, 2024 and sell it today you would lose (155.00) from holding The Long Term or give up 4.34% of portfolio value over 90 days.

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

Hennessy Technology Fund  vs.  The Long Term

Hennessy Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Technology Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Hennessy Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Long Term

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Long Term are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Long Term may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hennessy Technology and Long Term

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

The idea behind Hennessy Technology Fund and The Long Term 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.