Correlation Between Hercules Capital and Volkswagen

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

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

Diversification Opportunities for Hercules Capital and Volkswagen

-0.37

Correlation Coefficient

Hercules Capital  Volkswagen

Very good diversification

The 3 months correlation between Hercules and Volkswagen is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Hercules Capital i.e., Hercules Capital and Volkswagen go up and down completely randomly.

Pair Corralation between Hercules Capital and Volkswagen

Assuming the 90 days horizon Hercules Capital is expected to generate 1.11 times more return on investment than Volkswagen. However, Hercules Capital is 1.11 times more volatile than Volkswagen AG. It trades about 0.31 of its potential returns per unit of risk. Volkswagen AG is currently generating about 0.2 per unit of risk. If you would invest  1,806  in Hercules Capital on October 5, 2024 and sell it today you would earn a total of  176.00  from holding Hercules Capital or generate 9.75% return on investment over 90 days.

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

Hercules Capital  vs.  Volkswagen AG

Hercules Capital

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Hercules Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Hercules Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Hercules Capital and Volkswagen

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

The idea behind Hercules Capital and Volkswagen AG 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.