Correlation Between Hennessy Technology and Biotechnology Portfolio

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

Diversification Opportunities for Hennessy Technology and Biotechnology Portfolio

0.06

Correlation Coefficient

Hennessy Technology  Biotechnology Portfolio

Significant diversification

The 3 months correlation between Hennessy and Biotechnology is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Technology Fund and Biotechnology Portfolio Biotec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Portfolio 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 Biotechnology Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Portfolio has no effect on the direction of Hennessy Technology i.e., Hennessy Technology and Biotechnology Portfolio go up and down completely randomly.

Pair Corralation between Hennessy Technology and Biotechnology Portfolio

Assuming the 90 days horizon Hennessy Technology Fund is expected to under-perform the Biotechnology Portfolio. In addition to that, Hennessy Technology is 1.21 times more volatile than Biotechnology Portfolio Biotechnology. It trades about -0.06 of its total potential returns per unit of risk. Biotechnology Portfolio Biotechnology is currently generating about 0.04 per unit of volatility. If you would invest  1,936  in Biotechnology Portfolio Biotechnology on December 25, 2024 and sell it today you would earn a total of  41.00  from holding Biotechnology Portfolio Biotechnology or generate 2.12% return on investment over 90 days.

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

Hennessy Technology Fund  vs.  Biotechnology Portfolio Biotec

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 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.

Biotechnology Portfolio

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Biotechnology Portfolio Biotechnology are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Biotechnology Portfolio 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 Biotechnology Portfolio

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

The idea behind Hennessy Technology Fund and Biotechnology Portfolio Biotechnology 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.