Correlation Between Common Stock and Hennessy Japan

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

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

Diversification Opportunities for Common Stock and Hennessy Japan

0.62

Correlation Coefficient

Common Stock  Hennessy Japan

Poor diversification

The 3 months correlation between Common and Hennessy is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Common Stock Fund 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 Common Stock 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 Common Stock Fund 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 Common Stock i.e., Common Stock and Hennessy Japan go up and down completely randomly.

Pair Corralation between Common Stock and Hennessy Japan

Assuming the 90 days horizon Common Stock is expected to generate 6.34 times less return on investment than Hennessy Japan. In addition to that, Common Stock is 1.1 times more volatile than Hennessy Japan Small. It trades about 0.04 of its total potential returns per unit of risk. Hennessy Japan Small is currently generating about 0.27 per unit of volatility. If you would invest  1,830  in Hennessy Japan Small on May 13, 2025 and sell it today you would earn a total of  277.00  from holding Hennessy Japan Small or generate 15.14% return on investment over 90 days.

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

Common Stock Fund  vs.  Hennessy Japan Small

Common Stock

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Common Stock Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Common Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Hennessy Japan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Common Stock and Hennessy Japan

The main advantage of trading using opposite Common Stock and Hennessy Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Common Stock 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 Common Stock Fund 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.