Correlation Between Hercules Capital and Stellus Capital

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

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

Diversification Opportunities for Hercules Capital and Stellus Capital

0.68

Correlation Coefficient

Hercules Capital  Stellus Capital

Poor diversification

The 3 months correlation between Hercules and Stellus is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and Stellus Capital Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stellus Capital Inve 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 Stellus Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stellus Capital Inve has no effect on the direction of Hercules Capital i.e., Hercules Capital and Stellus Capital go up and down completely randomly.

Pair Corralation between Hercules Capital and Stellus Capital

Given the investment horizon of 90 days Hercules Capital is expected to under-perform the Stellus Capital. But the stock apears to be less risky and, when comparing its historical volatility, Hercules Capital is 1.03 times less risky than Stellus Capital. The stock trades about -0.02 of its potential returns per unit of risk. The Stellus Capital Investment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,339  in Stellus Capital Investment on December 29, 2024 and sell it today you would earn a total of  86.00  from holding Stellus Capital Investment or generate 6.42% 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.  Stellus Capital Investment

Hercules Capital

Risk-Adjusted Performance

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 rather sound technical and fundamental indicators, Hercules Capital is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Stellus Capital Inve

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Stellus Capital Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Stellus Capital may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Hercules Capital and Stellus Capital

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

The idea behind Hercules Capital and Stellus Capital Investment 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.