Correlation Between Houston Natural and AGL Energy
Can any of the company-specific risk be diversified away by investing in both Houston Natural and AGL 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 Natural and AGL Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Houston Natural Resources and AGL Energy Limited, you can compare the effects of market volatilities on Houston Natural and AGL 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 Natural with a short position of AGL Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Houston Natural and AGL Energy.
Diversification Opportunities for Houston Natural and AGL Energy
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Houston and AGL is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Houston Natural Resources and AGL Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGL Energy Limited and Houston Natural 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 Natural Resources are associated (or correlated) with AGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGL Energy Limited has no effect on the direction of Houston Natural i.e., Houston Natural and AGL Energy go up and down completely randomly.
Pair Corralation between Houston Natural and AGL Energy
Given the investment horizon of 90 days Houston Natural Resources is expected to generate 6.8 times more return on investment than AGL Energy. However, Houston Natural is 6.8 times more volatile than AGL Energy Limited. It trades about 0.04 of its potential returns per unit of risk. AGL Energy Limited is currently generating about 0.06 per unit of risk. If you would invest 3.07 in Houston Natural Resources on September 2, 2024 and sell it today you would lose (1.27) from holding Houston Natural Resources or give up 41.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 57.26% |
| Values | Daily Returns |
Houston Natural Resources vs. AGL Energy Limited
Performance |
| Timeline |
| Houston Natural Resources |
| AGL Energy Limited |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Houston Natural and AGL Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Houston Natural and AGL Energy
The main advantage of trading using opposite Houston Natural and AGL Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Houston Natural position performs unexpectedly, AGL 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 AGL Energy will offset losses from the drop in AGL Energy's long position.| Houston Natural vs. Ecoloclean Industrs | Houston Natural vs. JPX Global | Houston Natural vs. Majic Wheels Corp | Houston Natural vs. BQE Water |
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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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