Correlation Between Hercules Capital and MSP Recovery

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

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

Diversification Opportunities for Hercules Capital and MSP Recovery

-0.37

Correlation Coefficient

Hercules Capital  MSP Recovery

Very good diversification

The 3 months correlation between Hercules and MSP is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and MSP Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSP Recovery 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 MSP Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSP Recovery has no effect on the direction of Hercules Capital i.e., Hercules Capital and MSP Recovery go up and down completely randomly.

Pair Corralation between Hercules Capital and MSP Recovery

Given the investment horizon of 90 days Hercules Capital is expected to under-perform the MSP Recovery. But the stock apears to be less risky and, when comparing its historical volatility, Hercules Capital is 301.35 times less risky than MSP Recovery. The stock trades about -0.01 of its potential returns per unit of risk. The MSP Recovery is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  14.00  in MSP Recovery on October 6, 2024 and sell it today you would earn a total of  228.00  from holding MSP Recovery or generate 1628.57% return on investment over 90 days.

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

Hercules Capital  vs.  MSP Recovery

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.

MSP Recovery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSP Recovery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, MSP Recovery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hercules Capital and MSP Recovery

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

The idea behind Hercules Capital and MSP Recovery 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.