Correlation Between Brookfield Corp and Hercules Capital

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

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

Diversification Opportunities for Brookfield Corp and Hercules Capital

0.88

Correlation Coefficient

Brookfield Corp  Hercules Capital

Very poor diversification

The 3 months correlation between Brookfield and Hercules is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Corp and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and Brookfield Corp 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 Brookfield Corp 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 Brookfield Corp i.e., Brookfield Corp and Hercules Capital go up and down completely randomly.

Pair Corralation between Brookfield Corp and Hercules Capital

Allowing for the 90-day total investment horizon Brookfield Corp is expected to under-perform the Hercules Capital. In addition to that, Brookfield Corp is 1.5 times more volatile than Hercules Capital. It trades about -0.03 of its total potential returns per unit of risk. Hercules Capital is currently generating about -0.02 per unit of volatility. If you would invest  1,964  in Hercules Capital on December 29, 2024 and sell it today you would lose (38.00) from holding Hercules Capital or give up 1.93% of portfolio value over 90 days.

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

Brookfield Corp  vs.  Hercules Capital

Brookfield Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookfield Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brookfield Corp is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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. In spite of rather sound technical and fundamental indicators, Hercules Capital is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Brookfield Corp and Hercules Capital

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

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.