Correlation Between Alphabet and Hercules Capital

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

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

Diversification Opportunities for Alphabet and Hercules Capital

0.6

Correlation Coefficient

Alphabet  Hercules Capital

Poor diversification

The 3 months correlation between Alphabet and Hercules is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and Hercules Capital go up and down completely randomly.

Pair Corralation between Alphabet and Hercules Capital

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.89 times more return on investment than Hercules Capital. However, Alphabet is 1.89 times more volatile than Hercules Capital. It trades about 0.34 of its potential returns per unit of risk. Hercules Capital is currently generating about 0.01 per unit of risk. If you would invest  16,638  in Alphabet Inc Class C on September 23, 2024 and sell it today you would earn a total of  2,658  from holding Alphabet Inc Class C or generate 15.98% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Hercules Capital

Alphabet Class C

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

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 Alphabet and Hercules Capital

The main advantage of trading using opposite Alphabet and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.