Correlation Between Hercules Capital and Merrill Lynch

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

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

Diversification Opportunities for Hercules Capital and Merrill Lynch

-0.45

Correlation Coefficient

Hercules Capital  Merrill Lynch

Very good diversification

The 3 months correlation between Hercules and Merrill is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and Merrill Lynch Depositor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Depositor and Hercules Capital 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 Hercules Capital are associated (or correlated) with Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Depositor has no effect on the direction of Hercules Capital i.e., Hercules Capital and Merrill Lynch go up and down completely randomly.

Pair Corralation between Hercules Capital and Merrill Lynch

Given the investment horizon of 90 days Hercules Capital is expected to generate 0.5 times more return on investment than Merrill Lynch. However, Hercules Capital is 2.02 times less risky than Merrill Lynch. It trades about 0.0 of its potential returns per unit of risk. Merrill Lynch Depositor is currently generating about -0.03 per unit of risk. If you would invest  2,504  in Hercules Capital on September 19, 2024 and sell it today you would lose (2.00) from holding Hercules Capital or give up 0.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Hercules Capital  vs.  Merrill Lynch Depositor

Hercules Capital

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Hercules Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merrill Lynch Depositor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch Depositor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Merrill Lynch is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hercules Capital and Merrill Lynch

The main advantage of trading using opposite Hercules Capital and Merrill Lynch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hercules Capital position performs unexpectedly, Merrill Lynch 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 Merrill Lynch will offset losses from the drop in Merrill Lynch's long position.

The idea behind Hercules Capital and Merrill Lynch Depositor 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.