Correlation Between ERHC Energy and PrimeEnergy

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Can any of the company-specific risk be diversified away by investing in both ERHC Energy and PrimeEnergy 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 ERHC Energy and PrimeEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ERHC Energy and PrimeEnergy, you can compare the effects of market volatilities on ERHC Energy and PrimeEnergy 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 ERHC Energy with a short position of PrimeEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of ERHC Energy and PrimeEnergy.

Diversification Opportunities for ERHC Energy and PrimeEnergy

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between ERHC and PrimeEnergy is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding ERHC Energy and PrimeEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrimeEnergy and ERHC 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 ERHC Energy are associated (or correlated) with PrimeEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrimeEnergy has no effect on the direction of ERHC Energy i.e., ERHC Energy and PrimeEnergy go up and down completely randomly.

Pair Corralation between ERHC Energy and PrimeEnergy

Given the investment horizon of 90 days ERHC Energy is expected to generate 33.47 times more return on investment than PrimeEnergy. However, ERHC Energy is 33.47 times more volatile than PrimeEnergy. It trades about 0.11 of its potential returns per unit of risk. PrimeEnergy is currently generating about 0.11 per unit of risk. If you would invest  0.39  in ERHC Energy on September 2, 2024 and sell it today you would lose (0.18) from holding ERHC Energy or give up 46.15% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.6%
ValuesDaily Returns

ERHC Energy  vs.  PrimeEnergy

 Performance 
       Timeline  
ERHC Energy 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ERHC Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, ERHC Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.
PrimeEnergy 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, PrimeEnergy reported solid returns over the last few months and may actually be approaching a breakup point.

ERHC Energy and PrimeEnergy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ERHC Energy and PrimeEnergy

The main advantage of trading using opposite ERHC Energy and PrimeEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ERHC Energy position performs unexpectedly, PrimeEnergy 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 PrimeEnergy will offset losses from the drop in PrimeEnergy's long position.
The idea behind ERHC Energy and PrimeEnergy 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.
Check out your portfolio center.
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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