Correlation Between Hennessy Technology and California Bond

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

Diversification Opportunities for Hennessy Technology and California Bond

0.6

Correlation Coefficient

Hennessy Technology  California Bond

Poor diversification

The 3 months correlation between Hennessy and California is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Technology Fund and California Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Bond 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 California Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Bond has no effect on the direction of Hennessy Technology i.e., Hennessy Technology and California Bond go up and down completely randomly.

Pair Corralation between Hennessy Technology and California Bond

Assuming the 90 days horizon Hennessy Technology Fund is expected to generate 4.61 times more return on investment than California Bond. However, Hennessy Technology is 4.61 times more volatile than California Bond Fund. It trades about 0.06 of its potential returns per unit of risk. California Bond Fund is currently generating about 0.04 per unit of risk. If you would invest  1,693  in Hennessy Technology Fund on October 25, 2024 and sell it today you would earn a total of  709.00  from holding Hennessy Technology Fund or generate 41.88% return on investment over 90 days.

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

Hennessy Technology Fund  vs.  California Bond Fund

Hennessy Technology

Risk-Adjusted Performance

5 of 100

Modest

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

California Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, California Bond 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 California Bond

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

The idea behind Hennessy Technology Fund and California Bond Fund 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.