Correlation Between Hercules Capital and Federal Home

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Can any of the company-specific risk be diversified away by investing in both Hercules Capital and Federal Home 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 Hercules Capital and Federal Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hercules Capital and Federal Home Loan, you can compare the effects of market volatilities on Hercules Capital and Federal Home 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 Hercules Capital with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hercules Capital and Federal Home.

Diversification Opportunities for Hercules Capital and Federal Home

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Hercules and Federal is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan and Hercules Capital 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 Hercules Capital are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Hercules Capital i.e., Hercules Capital and Federal Home go up and down completely randomly.

Pair Corralation between Hercules Capital and Federal Home

Assuming the 90 days horizon Hercules Capital is expected to generate 0.17 times more return on investment than Federal Home. However, Hercules Capital is 5.76 times less risky than Federal Home. It trades about 0.08 of its potential returns per unit of risk. Federal Home Loan is currently generating about -0.15 per unit of risk. If you would invest  1,801  in Hercules Capital on September 24, 2024 and sell it today you would earn a total of  33.00  from holding Hercules Capital or generate 1.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Hercules Capital  vs.  Federal Home Loan

 Performance 
       Timeline  
Hercules Capital 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Hercules Capital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hercules Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Federal Home Loan 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Hercules Capital and Federal Home Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hercules Capital and Federal Home

The main advantage of trading using opposite Hercules Capital and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hercules Capital position performs unexpectedly, Federal Home 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 Federal Home will offset losses from the drop in Federal Home's long position.
The idea behind Hercules Capital and Federal Home Loan 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.
Check out your portfolio center.
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 CEOs Directory module to screen CEOs from public companies around the world.

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