Correlation Between Imperial Petroleum and Houston American

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

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

Diversification Opportunities for Imperial Petroleum and Houston American

-0.47

Correlation Coefficient

Imperial Petroleum  Houston American

Very good diversification

The 3 months correlation between Imperial and Houston is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Petroleum and Houston American Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston American Energy and Imperial Petroleum 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 Imperial Petroleum are associated (or correlated) with Houston American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston American Energy has no effect on the direction of Imperial Petroleum i.e., Imperial Petroleum and Houston American go up and down completely randomly.

Pair Corralation between Imperial Petroleum and Houston American

Given the investment horizon of 90 days Imperial Petroleum is expected to generate 0.95 times more return on investment than Houston American. However, Imperial Petroleum is 1.06 times less risky than Houston American. It trades about 0.05 of its potential returns per unit of risk. Houston American Energy is currently generating about -0.01 per unit of risk. If you would invest  235.00  in Imperial Petroleum on August 3, 2024 and sell it today you would earn a total of  132.00  from holding Imperial Petroleum or generate 56.17% return on investment over 90 days.

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

Imperial Petroleum  vs.  Houston American Energy

Imperial Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Imperial Petroleum is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Houston American Energy

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Houston American may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Imperial Petroleum and Houston American

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

The idea behind Imperial Petroleum and Houston American 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.