Correlation Between NYSE Composite and Hennessy Capital

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

By analyzing existing cross correlation between NYSE Composite and Hennessy Capital Investment, you can compare the effects of market volatilities on NYSE Composite and Hennessy Capital 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 NYSE Composite with a short position of Hennessy Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Hennessy Capital.

Diversification Opportunities for NYSE Composite and Hennessy Capital

-0.39

Correlation Coefficient

NYSE Composite  Hennessy Capital

Very good diversification

The 3 months correlation between NYSE and Hennessy is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Hennessy Capital Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Capital Inv and NYSE Composite 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 NYSE Composite are associated (or correlated) with Hennessy Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Capital Inv has no effect on the direction of NYSE Composite i.e., NYSE Composite and Hennessy Capital go up and down completely randomly.

Pair Corralation between NYSE Composite and Hennessy Capital

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Hennessy Capital. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 11.86 times less risky than Hennessy Capital. The index trades about -0.01 of its potential returns per unit of risk. The Hennessy Capital Investment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Hennessy Capital Investment on October 20, 2024 and sell it today you would earn a total of  1.00  from holding Hennessy Capital Investment or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	43.55%
Values	Daily Returns

NYSE Composite  vs.  Hennessy Capital Investment

Pair Trading with NYSE Composite and Hennessy Capital

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

The idea behind NYSE Composite and Hennessy Capital Investment 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.