Correlation Between Prospect Capital and Hercules Capital

Can any of the company-specific risk be diversified away by investing in both Prospect 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 Prospect 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 Prospect Capital and Hercules Capital, you can compare the effects of market volatilities on Prospect 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 Prospect Capital with a short position of Hercules Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prospect Capital and Hercules Capital.

Diversification Opportunities for Prospect Capital and Hercules Capital

-0.09

Correlation Coefficient

Prospect Capital  Hercules Capital

Good diversification

The 3 months correlation between Prospect and Hercules is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Hercules Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Capital and Prospect 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 Prospect 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 Prospect Capital i.e., Prospect Capital and Hercules Capital go up and down completely randomly.

Pair Corralation between Prospect Capital and Hercules Capital

Given the investment horizon of 90 days Prospect Capital is expected to under-perform the Hercules Capital. In addition to that, Prospect Capital is 1.6 times more volatile than Hercules Capital. It trades about -0.11 of its total potential returns per unit of risk. Hercules Capital is currently generating about 0.14 per unit of volatility. If you would invest  1,725  in Hercules Capital on May 2, 2025 and sell it today you would earn a total of  151.00  from holding Hercules Capital or generate 8.75% return on investment over 90 days.

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

Prospect Capital  vs.  Hercules Capital

Prospect Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Hercules Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hercules Capital are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Hercules Capital may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Prospect Capital and Hercules Capital

The main advantage of trading using opposite Prospect Capital and Hercules Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prospect 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 Prospect 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.