Correlation Between DIVERSIFIED ROYALTY and Hercules Capital

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

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

Diversification Opportunities for DIVERSIFIED ROYALTY and Hercules Capital

0.49

Correlation Coefficient

DIVERSIFIED ROYALTY  Hercules Capital

Very weak diversification

The 3 months correlation between DIVERSIFIED and Hercules is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding DIVERSIFIED ROYALTY and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY i.e., DIVERSIFIED ROYALTY and Hercules Capital go up and down completely randomly.

Pair Corralation between DIVERSIFIED ROYALTY and Hercules Capital

Assuming the 90 days horizon DIVERSIFIED ROYALTY is expected to under-perform the Hercules Capital. In addition to that, DIVERSIFIED ROYALTY is 1.92 times more volatile than Hercules Capital. It trades about -0.14 of its total potential returns per unit of risk. Hercules Capital is currently generating about 0.01 per unit of volatility. If you would invest  1,805  in Hercules Capital on September 22, 2024 and sell it today you would earn a total of  2.00  from holding Hercules Capital or generate 0.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

DIVERSIFIED ROYALTY  vs.  Hercules Capital

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DIVERSIFIED ROYALTY are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DIVERSIFIED ROYALTY is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Hercules Capital

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hercules Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with DIVERSIFIED ROYALTY and Hercules Capital

The main advantage of trading using opposite DIVERSIFIED ROYALTY and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DIVERSIFIED ROYALTY 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.

The idea behind DIVERSIFIED ROYALTY and Hercules Capital 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.