Correlation Between Hercules Capital and National Rural

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

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

Diversification Opportunities for Hercules Capital and National Rural

0.6

Correlation Coefficient

Hercules Capital  National Rural

Poor diversification

The 3 months correlation between Hercules and National is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and National Rural Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Rural Utilities 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 National Rural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Rural Utilities has no effect on the direction of Hercules Capital i.e., Hercules Capital and National Rural go up and down completely randomly.

Pair Corralation between Hercules Capital and National Rural

Given the investment horizon of 90 days Hercules Capital is expected to generate 2.5 times less return on investment than National Rural. But when comparing it to its historical volatility, Hercules Capital is 1.3 times less risky than National Rural. It trades about 0.07 of its potential returns per unit of risk. National Rural Utilities is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,235  in National Rural Utilities on December 29, 2024 and sell it today you would earn a total of  133.00  from holding National Rural Utilities or generate 5.95% return on investment over 90 days.

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

Hercules Capital  vs.  National Rural Utilities

Hercules Capital

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hercules Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Hercules Capital is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

National Rural Utilities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Rural Utilities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, National Rural is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hercules Capital and National Rural

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

The idea behind Hercules Capital and National Rural Utilities 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.