Correlation Between Nine Energy and Houston American

Can any of the company-specific risk be diversified away by investing in both Nine 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 Nine 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 Nine Energy Service and Houston American Energy, you can compare the effects of market volatilities on Nine 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 Nine Energy with a short position of Houston American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nine Energy and Houston American.

Diversification Opportunities for Nine Energy and Houston American

0.12

Correlation Coefficient

Nine Energy  Houston American

Average diversification

The 3 months correlation between Nine and Houston is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Nine Energy Service 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 Nine 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 Nine Energy Service 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 Nine Energy i.e., Nine Energy and Houston American go up and down completely randomly.

Pair Corralation between Nine Energy and Houston American

Given the investment horizon of 90 days Nine Energy Service is expected to under-perform the Houston American. But the stock apears to be less risky and, when comparing its historical volatility, Nine Energy Service is 1.05 times less risky than Houston American. The stock trades about -0.06 of its potential returns per unit of risk. The Houston American Energy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  278.00  in Houston American Energy on August 3, 2024 and sell it today you would lose (140.00) from holding Houston American Energy or give up 50.36% of portfolio value over 90 days.

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

Nine Energy Service  vs.  Houston American Energy

Nine Energy Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nine Energy Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Nine Energy and Houston American

The main advantage of trading using opposite Nine Energy and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nine 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 Nine Energy Service 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.