Correlation Between Herc Holdings and Fevertree Drinks

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

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

Diversification Opportunities for Herc Holdings and Fevertree Drinks

0.42

Correlation Coefficient

Herc Holdings  Fevertree Drinks

Very weak diversification

The 3 months correlation between Herc and Fevertree is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks Plc 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Herc Holdings i.e., Herc Holdings and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Herc Holdings and Fevertree Drinks

Considering the 90-day investment horizon Herc Holdings is expected to under-perform the Fevertree Drinks. In addition to that, Herc Holdings is 1.77 times more volatile than Fevertree Drinks Plc. It trades about -0.01 of its total potential returns per unit of risk. Fevertree Drinks Plc is currently generating about 0.48 per unit of volatility. If you would invest  1,325  in Fevertree Drinks Plc on February 23, 2024 and sell it today you would earn a total of  157.00  from holding Fevertree Drinks Plc or generate 11.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Herc Holdings  vs.  Fevertree Drinks Plc

Herc Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Herc Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Herc Holdings is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Fevertree Drinks Plc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fevertree Drinks Plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Fevertree Drinks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Herc Holdings and Fevertree Drinks

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

The idea behind Herc Holdings and Fevertree Drinks Plc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.