Correlation Between Herc Holdings and Stagwell

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

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

Diversification Opportunities for Herc Holdings and Stagwell

0.37

Correlation Coefficient

Herc Holdings  Stagwell

Weak diversification

The 3 months correlation between Herc and Stagwell is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and Stagwell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stagwell and Herc Holdings 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 Herc Holdings are associated (or correlated) with Stagwell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stagwell has no effect on the direction of Herc Holdings i.e., Herc Holdings and Stagwell go up and down completely randomly.

Pair Corralation between Herc Holdings and Stagwell

Considering the 90-day investment horizon Herc Holdings is expected to generate 1.4 times more return on investment than Stagwell. However, Herc Holdings is 1.4 times more volatile than Stagwell. It trades about 0.24 of its potential returns per unit of risk. Stagwell is currently generating about 0.05 per unit of risk. If you would invest  13,378  in Herc Holdings on September 12, 2024 and sell it today you would earn a total of  7,877  from holding Herc Holdings or generate 58.88% return on investment over 90 days.

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

Herc Holdings  vs.  Stagwell

Herc Holdings

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Herc Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Herc Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Stagwell

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stagwell are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Stagwell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Herc Holdings and Stagwell

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

The idea behind Herc Holdings and Stagwell 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.