Correlation Between Ares Capital and Hercules Capital
Can any of the company-specific risk be diversified away by investing in both Ares Capital and Hercules Capital 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 Ares Capital and Hercules Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ares Capital and Hercules Capital, you can compare the effects of market volatilities on Ares Capital and Hercules Capital 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 Ares Capital with a short position of Hercules Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Capital and Hercules Capital.
Diversification Opportunities for Ares Capital and Hercules Capital
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ares and Hercules is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ares Capital and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and Ares 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 Ares Capital are associated (or correlated) with Hercules Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hercules Capital has no effect on the direction of Ares Capital i.e., Ares Capital and Hercules Capital go up and down completely randomly.
Pair Corralation between Ares Capital and Hercules Capital
Given the investment horizon of 90 days Ares Capital is expected to generate 1.59 times less return on investment than Hercules Capital. But when comparing it to its historical volatility, Ares Capital is 1.73 times less risky than Hercules Capital. It trades about 0.08 of its potential returns per unit of risk. Hercules Capital is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,089 in Hercules Capital on August 27, 2024 and sell it today you would earn a total of 787.00 from holding Hercules Capital or generate 72.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ares Capital vs. Hercules Capital
Performance |
| Timeline |
| Ares Capital |
| Hercules Capital |
Ares Capital and Hercules Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ares Capital and Hercules Capital
The main advantage of trading using opposite Ares Capital and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ares Capital position performs unexpectedly, Hercules Capital 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 Hercules Capital will offset losses from the drop in Hercules Capital's long position.| Ares Capital vs. Triplepoint Venture Growth | Ares Capital vs. Sixth Street Specialty | Ares Capital vs. Main Street Capital | Ares Capital vs. Capital Southwest |
| Hercules Capital vs. Main Street Capital | Hercules Capital vs. PennantPark Floating Rate | Hercules Capital vs. FS KKR Capital | Hercules Capital vs. Prospect Capital |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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