Correlation Between Hennessy Small and Hennessy Large

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

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

Diversification Opportunities for Hennessy Small and Hennessy Large

0.71

Correlation Coefficient

Hennessy Small  Hennessy Large

Poor diversification

The 3 months correlation between Hennessy and Hennessy is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Small Cap and Hennessy Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Large Cap and Hennessy 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 Hennessy Small Cap are associated (or correlated) with Hennessy Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Large Cap has no effect on the direction of Hennessy Small i.e., Hennessy Small and Hennessy Large go up and down completely randomly.

Pair Corralation between Hennessy Small and Hennessy Large

Assuming the 90 days horizon Hennessy Small is expected to generate 3.79 times less return on investment than Hennessy Large. In addition to that, Hennessy Small is 1.16 times more volatile than Hennessy Large Cap. It trades about 0.05 of its total potential returns per unit of risk. Hennessy Large Cap is currently generating about 0.2 per unit of volatility. If you would invest  2,844  in Hennessy Large Cap on May 6, 2025 and sell it today you would earn a total of  493.00  from holding Hennessy Large Cap or generate 17.33% return on investment over 90 days.

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

Hennessy Small Cap  vs.  Hennessy Large Cap

Hennessy Small Cap

Risk-Adjusted Performance

Weak

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

Hennessy Large Cap

Risk-Adjusted Performance

Solid

Over the last 90 days Hennessy Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Hennessy Large showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hennessy Small and Hennessy Large

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

The idea behind Hennessy Small Cap and Hennessy Large Cap 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.