Correlation Between Hercules Capital and Olympic Steel

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

By analyzing existing cross correlation between Hercules Capital and Olympic Steel, you can compare the effects of market volatilities on Hercules Capital and Olympic Steel 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 Olympic Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hercules Capital and Olympic Steel.

Diversification Opportunities for Hercules Capital and Olympic Steel

0.48

Correlation Coefficient

Hercules Capital  Olympic Steel

Very weak diversification

The 3 months correlation between Hercules and Olympic is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel 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 Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of Hercules Capital i.e., Hercules Capital and Olympic Steel go up and down completely randomly.

Pair Corralation between Hercules Capital and Olympic Steel

Assuming the 90 days horizon Hercules Capital is expected to generate 0.81 times more return on investment than Olympic Steel. However, Hercules Capital is 1.24 times less risky than Olympic Steel. It trades about 0.0 of its potential returns per unit of risk. Olympic Steel is currently generating about -0.02 per unit of risk. If you would invest  1,794  in Hercules Capital on December 23, 2024 and sell it today you would lose (15.00) from holding Hercules Capital or give up 0.84% of portfolio value over 90 days.

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

Hercules Capital  vs.  Olympic Steel

Hercules Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hercules Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hercules Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Olympic Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Olympic Steel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hercules Capital and Olympic Steel

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

The idea behind Hercules Capital and Olympic Steel 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.