Correlation Between Hennessy Technology and Davidson Multi-cap

Can any of the company-specific risk be diversified away by investing in both Hennessy Technology and Davidson Multi-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 Technology and Davidson Multi-cap 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 Davidson Multi Cap Equity, you can compare the effects of market volatilities on Hennessy Technology and Davidson Multi-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 Technology with a short position of Davidson Multi-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Technology and Davidson Multi-cap.

Diversification Opportunities for Hennessy Technology and Davidson Multi-cap

0.97

Correlation Coefficient

Hennessy Technology  Davidson Multi-cap

Almost no diversification

The 3 months correlation between Hennessy and Davidson is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Technology Fund and Davidson Multi Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davidson Multi Cap 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 Davidson Multi-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davidson Multi Cap has no effect on the direction of Hennessy Technology i.e., Hennessy Technology and Davidson Multi-cap go up and down completely randomly.

Pair Corralation between Hennessy Technology and Davidson Multi-cap

Assuming the 90 days horizon Hennessy Technology Fund is expected to under-perform the Davidson Multi-cap. In addition to that, Hennessy Technology is 1.62 times more volatile than Davidson Multi Cap Equity. It trades about -0.09 of its total potential returns per unit of risk. Davidson Multi Cap Equity is currently generating about -0.08 per unit of volatility. If you would invest  3,412  in Davidson Multi Cap Equity on December 31, 2024 and sell it today you would lose (156.00) from holding Davidson Multi Cap Equity or give up 4.57% of portfolio value over 90 days.

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

Hennessy Technology Fund  vs.  Davidson Multi Cap Equity

Hennessy Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hennessy Technology Fund 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.

Davidson Multi Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hennessy Technology and Davidson Multi-cap

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

The idea behind Hennessy Technology Fund and Davidson Multi Cap Equity 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.