Correlation Between Ford and Hercules Capital

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

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

Diversification Opportunities for Ford and Hercules Capital

0.1

Correlation Coefficient

Ford  Hercules Capital

Average diversification

The 3 months correlation between Ford and Hercules is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and Ford 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 Ford Motor 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 Ford i.e., Ford and Hercules Capital go up and down completely randomly.

Pair Corralation between Ford and Hercules Capital

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Hercules Capital. In addition to that, Ford is 1.33 times more volatile than Hercules Capital. It trades about -0.39 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  1,806  in Hercules Capital on September 23, 2024 and sell it today you would earn a total of  1.00  from holding Hercules Capital or generate 0.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  Hercules Capital

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company 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 Ford and Hercules Capital

The main advantage of trading using opposite Ford and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.