Correlation Between Trinity Capital and Hercules Capital

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

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

Diversification Opportunities for Trinity Capital and Hercules Capital

0.05

Correlation Coefficient

Trinity Capital  Hercules Capital

Significant diversification

The 3 months correlation between Trinity and Hercules is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Trinity Capital and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and Trinity 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 Trinity Capital 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 Trinity Capital i.e., Trinity Capital and Hercules Capital go up and down completely randomly.

Pair Corralation between Trinity Capital and Hercules Capital

Given the investment horizon of 90 days Trinity Capital is expected to generate 1.4 times less return on investment than Hercules Capital. But when comparing it to its historical volatility, Trinity Capital is 1.04 times less risky than Hercules Capital. It trades about 0.06 of its potential returns per unit of risk. Hercules Capital is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,111  in Hercules Capital on October 3, 2024 and sell it today you would earn a total of  898.00  from holding Hercules Capital or generate 80.83% return on investment over 90 days.

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

Trinity Capital  vs.  Hercules Capital

Trinity Capital

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Capital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal forward indicators, Trinity Capital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hercules Capital

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hercules Capital are ranked lower than 4 (%) 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 Trinity Capital and Hercules Capital

The main advantage of trading using opposite Trinity Capital and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trinity Capital 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 Trinity Capital 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.