Correlation Between Japanese Small and Hennessy Japan

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

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

Diversification Opportunities for Japanese Small and Hennessy Japan

0.96

Correlation Coefficient

Japanese Small  Hennessy Japan

Almost no diversification

The 3 months correlation between Japanese and Hennessy is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Japanese Small Pany and Hennessy Japan Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Japan Small and Japanese Small 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 Japanese Small Pany are associated (or correlated) with Hennessy Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Japan Small has no effect on the direction of Japanese Small i.e., Japanese Small and Hennessy Japan go up and down completely randomly.

Pair Corralation between Japanese Small and Hennessy Japan

Assuming the 90 days horizon Japanese Small is expected to generate 1.08 times less return on investment than Hennessy Japan. But when comparing it to its historical volatility, Japanese Small Pany is 1.02 times less risky than Hennessy Japan. It trades about 0.22 of its potential returns per unit of risk. Hennessy Japan Small is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,815  in Hennessy Japan Small on May 8, 2025 and sell it today you would earn a total of  228.00  from holding Hennessy Japan Small or generate 12.56% return on investment over 90 days.

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

Japanese Small Pany  vs.  Hennessy Japan Small

Japanese Small Pany

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Japanese Small Pany are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Japanese Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Hennessy Japan Small

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Japan Small are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Hennessy Japan may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Japanese Small and Hennessy Japan

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

The idea behind Japanese Small Pany and Hennessy Japan Small 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.