Correlation Between PennantPark Floating and Hercules Capital

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

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

Diversification Opportunities for PennantPark Floating and Hercules Capital

0.71

Correlation Coefficient

PennantPark Floating  Hercules Capital

Poor diversification

The 3 months correlation between PennantPark and Hercules is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding PennantPark Floating Rate and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and PennantPark Floating 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 PennantPark Floating Rate 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 PennantPark Floating i.e., PennantPark Floating and Hercules Capital go up and down completely randomly.

Pair Corralation between PennantPark Floating and Hercules Capital

Given the investment horizon of 90 days PennantPark Floating is expected to generate 1.28 times less return on investment than Hercules Capital. But when comparing it to its historical volatility, PennantPark Floating Rate is 1.26 times less risky than Hercules Capital. It trades about 0.03 of its potential returns per unit of risk. Hercules Capital is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,866  in Hercules Capital on September 1, 2024 and sell it today you would earn a total of  27.00  from holding Hercules Capital or generate 1.45% return on investment over 90 days.

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

PennantPark Floating Rate  vs.  Hercules Capital

PennantPark Floating Rate

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Floating Rate are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, PennantPark Floating is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Hercules Capital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hercules Capital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with PennantPark Floating and Hercules Capital

The main advantage of trading using opposite PennantPark Floating and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PennantPark Floating 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 PennantPark Floating Rate 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.