Correlation Between Hennessy and First Trust

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

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

Diversification Opportunities for Hennessy and First Trust

0.92

Correlation Coefficient

Hennessy  First Trust

Almost no diversification

The 3 months correlation between Hennessy and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Bp Energy and First Trust Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Energy and Hennessy 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 Bp Energy are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Energy has no effect on the direction of Hennessy i.e., Hennessy and First Trust go up and down completely randomly.

Pair Corralation between Hennessy and First Trust

Assuming the 90 days horizon Hennessy Bp Energy is expected to generate 1.18 times more return on investment than First Trust. However, Hennessy is 1.18 times more volatile than First Trust Energy. It trades about -0.1 of its potential returns per unit of risk. First Trust Energy is currently generating about -0.27 per unit of risk. If you would invest  2,697  in Hennessy Bp Energy on February 2, 2024 and sell it today you would lose (65.00) from holding Hennessy Bp Energy or give up 2.41% of portfolio value over 90 days.

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

Hennessy Bp Energy  vs.  First Trust Energy

Hennessy Bp Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Bp Energy are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hennessy showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Energy

Risk-Adjusted Performance

3 of 100

Modest

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

Pair Trading with Hennessy and First Trust

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

The idea behind Hennessy Bp Energy and First Trust Energy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.