Correlation Between Herc Holdings and Connecticut Light

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

By analyzing existing cross correlation between Herc Holdings and The Connecticut Light, you can compare the effects of market volatilities on Herc Holdings and Connecticut Light 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 Herc Holdings with a short position of Connecticut Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Herc Holdings and Connecticut Light.

Diversification Opportunities for Herc Holdings and Connecticut Light

-0.7

Correlation Coefficient

Herc Holdings  Connecticut Light

Excellent diversification

The 3 months correlation between Herc and Connecticut is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light and Herc Holdings 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 Herc Holdings are associated (or correlated) with Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Herc Holdings i.e., Herc Holdings and Connecticut Light go up and down completely randomly.

Pair Corralation between Herc Holdings and Connecticut Light

Considering the 90-day investment horizon Herc Holdings is expected to under-perform the Connecticut Light. In addition to that, Herc Holdings is 3.18 times more volatile than The Connecticut Light. It trades about -0.46 of its total potential returns per unit of risk. The Connecticut Light is currently generating about -0.13 per unit of volatility. If you would invest  3,425  in The Connecticut Light on October 9, 2024 and sell it today you would lose (63.00) from holding The Connecticut Light or give up 1.84% of portfolio value over 90 days.

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

Herc Holdings  vs.  The Connecticut Light

Herc Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Herc Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Herc Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Connecticut Light has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Herc Holdings and Connecticut Light

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

The idea behind Herc Holdings and The Connecticut Light 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.