Correlation Between Zacks Small and Hennessy Focus

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

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

Diversification Opportunities for Zacks Small and Hennessy Focus

0.84

Correlation Coefficient

Zacks Small  Hennessy Focus

Very poor diversification

The 3 months correlation between Zacks and Hennessy is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Zacks Small Cap E and Hennessy Focus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Focus and Zacks 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 Zacks Small Cap E are associated (or correlated) with Hennessy Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Focus has no effect on the direction of Zacks Small i.e., Zacks Small and Hennessy Focus go up and down completely randomly.

Pair Corralation between Zacks Small and Hennessy Focus

Assuming the 90 days horizon Zacks Small is expected to generate 2.39 times less return on investment than Hennessy Focus. But when comparing it to its historical volatility, Zacks Small Cap E is 1.34 times less risky than Hennessy Focus. It trades about 0.13 of its potential returns per unit of risk. Hennessy Focus Fund is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  4,353  in Hennessy Focus Fund on May 4, 2025 and sell it today you would earn a total of  999.00  from holding Hennessy Focus Fund or generate 22.95% return on investment over 90 days.

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

Zacks Small Cap E  vs.  Hennessy Focus Fund

Zacks Small Cap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zacks Small Cap E are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Zacks Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Hennessy Focus

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Focus Fund 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 Focus showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zacks Small and Hennessy Focus

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

The idea behind Zacks Small Cap E and Hennessy Focus 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.