Correlation Between Hennessy Technology and Small-cap Value

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

Diversification Opportunities for Hennessy Technology and Small-cap Value

0.79

Correlation Coefficient

Hennessy Technology  Small-cap Value

Poor diversification

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

Pair Corralation between Hennessy Technology and Small-cap Value

Assuming the 90 days horizon Hennessy Technology Fund is expected to generate 1.27 times more return on investment than Small-cap Value. However, Hennessy Technology is 1.27 times more volatile than Small Cap Value Series. It trades about -0.08 of its potential returns per unit of risk. Small Cap Value Series is currently generating about -0.13 per unit of risk. If you would invest  2,303  in Hennessy Technology Fund on December 22, 2024 and sell it today you would lose (156.00) from holding Hennessy Technology Fund or give up 6.77% 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.  Small Cap Value Series

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.

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Hennessy Technology and Small-cap Value

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

The idea behind Hennessy Technology Fund and Small Cap Value Series 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.