Correlation Between Houston American and Vaalco Energy

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

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

Diversification Opportunities for Houston American and Vaalco Energy

0.66

Correlation Coefficient

Houston American  Vaalco Energy

Poor diversification

The 3 months correlation between Houston and Vaalco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Houston American Energy and Vaalco Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaalco Energy and Houston American 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 Houston American Energy are associated (or correlated) with Vaalco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaalco Energy has no effect on the direction of Houston American i.e., Houston American and Vaalco Energy go up and down completely randomly.

Pair Corralation between Houston American and Vaalco Energy

Given the investment horizon of 90 days Houston American Energy is expected to generate 7.84 times more return on investment than Vaalco Energy. However, Houston American is 7.84 times more volatile than Vaalco Energy. It trades about 0.12 of its potential returns per unit of risk. Vaalco Energy is currently generating about 0.08 per unit of risk. If you would invest  600.00  in Houston American Energy on May 7, 2025 and sell it today you would earn a total of  404.00  from holding Houston American Energy or generate 67.33% return on investment over 90 days.

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

Houston American Energy  vs.  Vaalco Energy

Houston American Energy

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Houston American sustained solid returns over the last few months and may actually be approaching a breakup point.

Vaalco Energy

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Vaalco Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vaalco Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Houston American and Vaalco Energy

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

The idea behind Houston American Energy and Vaalco Energy 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.