Correlation Between Morningstar Unconstrained and Hercules Capital

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

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

Diversification Opportunities for Morningstar Unconstrained and Hercules Capital

0.45

Correlation Coefficient

Morningstar Unconstrained  Hercules Capital

Very weak diversification

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

Pair Corralation between Morningstar Unconstrained and Hercules Capital

Assuming the 90 days horizon Morningstar Unconstrained Allocation is expected to under-perform the Hercules Capital. In addition to that, Morningstar Unconstrained is 2.13 times more volatile than Hercules Capital. It trades about -0.17 of its total potential returns per unit of risk. Hercules Capital is currently generating about -0.03 per unit of volatility. If you would invest  2,512  in Hercules Capital on September 27, 2024 and sell it today you would lose (25.00) from holding Hercules Capital or give up 1.0% of portfolio value over 90 days.

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

Morningstar Unconstrained Allo  vs.  Hercules Capital

Morningstar Unconstrained

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morningstar Unconstrained Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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.

Pair Trading with Morningstar Unconstrained and Hercules Capital

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

The idea behind Morningstar Unconstrained Allocation and Hercules Capital 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 Global Correlations module to find global opportunities by holding instruments from different markets.