Correlation Between FS KKR and Hercules Capital

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

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

Diversification Opportunities for FS KKR and Hercules Capital

0.84

Correlation Coefficient

FS KKR  Hercules Capital

Very poor diversification

The 3 months correlation between FSK and Hercules is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding FS KKR Capital and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and FS KKR 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 FS KKR Capital 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 FS KKR i.e., FS KKR and Hercules Capital go up and down completely randomly.

Pair Corralation between FS KKR and Hercules Capital

Considering the 90-day investment horizon FS KKR Capital is expected to generate 0.93 times more return on investment than Hercules Capital. However, FS KKR Capital is 1.07 times less risky than Hercules Capital. It trades about 0.01 of its potential returns per unit of risk. Hercules Capital is currently generating about -0.01 per unit of risk. If you would invest  2,099  in FS KKR Capital on December 28, 2024 and sell it today you would earn a total of  10.00  from holding FS KKR Capital or generate 0.48% return on investment over 90 days.

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

FS KKR Capital  vs.  Hercules Capital

FS KKR Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days FS KKR Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, FS KKR is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional 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 FS KKR and Hercules Capital

The main advantage of trading using opposite FS KKR and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FS KKR 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 FS KKR Capital 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.