Correlation Between Hercules Capital and Federal Home

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

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

Diversification Opportunities for Hercules Capital and Federal Home

0.25

Correlation Coefficient

Hercules Capital  Federal Home

Modest diversification

The 3 months correlation between Hercules and Federal is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Hercules Capital i.e., Hercules Capital and Federal Home go up and down completely randomly.

Pair Corralation between Hercules Capital and Federal Home

Assuming the 90 days horizon Hercules Capital is expected to generate 4.06 times less return on investment than Federal Home. But when comparing it to its historical volatility, Hercules Capital is 3.49 times less risky than Federal Home. It trades about 0.08 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  454.00  in Federal Home Loan on April 23, 2025 and sell it today you would earn a total of  136.00  from holding Federal Home Loan or generate 29.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Hercules Capital  vs.  Federal Home Loan

Hercules Capital

Risk-Adjusted Performance

Modest

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

Federal Home Loan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hercules Capital and Federal Home

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

The idea behind Hercules Capital and Federal Home Loan 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.