Understanding the rolling correlation with Hedonova

## **Introduction**

In the world of investments, correlation analysis plays a crucial role in understanding the relationships between different assets. One widely used method is the rolling correlation, which provides valuable insights into how Hedonova is correlated with the S&P 500 index. In this blog post, we will explore the concept of rolling correlation and its significance in evaluating Hedonova.

## **What is rolling correlation?**

Rolling correlation measures the strength and direction of the relationship between two variables over a specific time period. It is a dynamic analysis that captures changes in correlation as new data becomes available. By calculating rolling correlations, investors can gain valuable insights into how Hedonova moves in relation to the broader market represented by the S&P 500.

## Hedonova

Before delving into rolling correlation, it is essential to familiarize ourselves with Hedonova. Hedonova is a globally diversified investment fund that offers a wide range of investment opportunities, including music royalties, startups, equipment finance, among others.

## The rolling correlation coefficient

The rolling correlation coefficient is a statistical measure that ranges between 1 and -1, representing the strength and direction of the relationship between two variables. A rolling correlation coefficient of 1 indicates a perfect positive correlation, where the variables move in perfect harmony. Conversely, a rolling correlation coefficient of -1 represents a perfect negative correlation, indicating that the variables move in opposite directions. A rolling correlation coefficient of 0 implies no linear relationship between the variables, signifying their independence and unrelated movements.

## **Interpreting Hedonova’s rolling correlation**

![Graph interpreting Hedonova’s rolling correlation](img/hedonova-fund_-correlation-with-s-p-500.jpg)

![Graph comparing NAV vs. S&P 500 index performance from July 2020 to January 2023](https://hedonova.b-cdn.net/Hedonova%20images/%20All%20Hedonova%20blogs/Understanding%20the%20rolling%20correlation%20with%20Hedonova/nav-and-sp500-min.webp)

Understanding the rolling correlation between Hedonova and the S&P 500 holds significant importance for several reasons. It enables investors to assess the fund's performance during various market conditions.

The high positive correlation observed during the first half of 2021 suggests that Hedonova is closely tied to the overall market, making it more vulnerable to market volatility.

Conversely, the low correlation observed in 2022 indicates that Hedonova is less influenced by market movements, offering diversification benefits to an investment portfolio.

Periodic instances of negative correlation in the second half of 2021 and throughout 2022 indicate that Hedonova experienced growth while the S&P 500 was declining, suggesting an inverse relationship.

Rolling correlation analysis also helps identify periods of change in the relationship between Hedonova and the S&P 500. If the historical positive correlation starts declining, it may indicate shifts in market dynamics or changes in Hedonova's investment strategy.

## **Conclusion**

Rolling correlation analysis provides valuable insights into the relationship between Hedonova and the S&P 500. By understanding the dynamic nature of this correlation, investors can make well-informed decisions regarding their investment portfolios. Regular monitoring and analysis of rolling correlations enable the adaptation of investment strategies based on changing market conditions and ensure optimal portfolio diversification. It is crucial to examine the returns chart alongside the correlation chart to assess whether the fund's value increased or decreased during periods of both positive and negative correlation.

Rolling correlation is a dynamic statistical measure that assesses the strength and direction of the relationship between two variables over a specific time window. It provides valuable insights into how assets are correlated over time, aiding investors in understanding diversification benefits, risk exposures, and making informed decisions for their investment portfolios. By tracking changes in rolling correlation, investors can identify patterns and trends, adapt strategies, and navigate financial markets with greater confidence.



Understanding the rolling correlation with Hedonova

Keep reading

Subscribe to Hedonova's newsletter