Correlation Between Indonesia Energy and Houston American

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

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

Diversification Opportunities for Indonesia Energy and Houston American

0.85

Correlation Coefficient

Indonesia Energy  Houston American

Very poor diversification

The 3 months correlation between Indonesia and Houston is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Indonesia Energy 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 Indonesia Energy 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 Indonesia Energy 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 Indonesia Energy i.e., Indonesia Energy and Houston American go up and down completely randomly.

Pair Corralation between Indonesia Energy and Houston American

Given the investment horizon of 90 days Indonesia Energy is expected to generate 1.6 times more return on investment than Houston American. However, Indonesia Energy is 1.6 times more volatile than Houston American Energy. It trades about 0.03 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  513.00  in Indonesia Energy on August 3, 2024 and sell it today you would lose (96.00) from holding Indonesia Energy or give up 18.71% of portfolio value over 90 days.

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

Indonesia Energy  vs.  Houston American Energy

Indonesia Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Indonesia Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Indonesia Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Indonesia Energy and Houston American

The main advantage of trading using opposite Indonesia Energy and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indonesia Energy 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 Indonesia Energy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.