Correlation Between Houston American and Imperial Petroleum
Can any of the company-specific risk be diversified away by investing in both Houston American and Imperial Petroleum 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 American and Imperial Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Houston American Energy and Imperial Petroleum, you can compare the effects of market volatilities on Houston American and Imperial Petroleum 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 American with a short position of Imperial Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Houston American and Imperial Petroleum.
Diversification Opportunities for Houston American and Imperial Petroleum
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Houston and Imperial is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Houston American Energy and Imperial Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Petroleum and Houston American 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 American Energy are associated (or correlated) with Imperial Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Petroleum has no effect on the direction of Houston American i.e., Houston American and Imperial Petroleum go up and down completely randomly.
Pair Corralation between Houston American and Imperial Petroleum
Given the investment horizon of 90 days Houston American Energy is expected to generate 4.9 times more return on investment than Imperial Petroleum. However, Houston American is 4.9 times more volatile than Imperial Petroleum. It trades about 0.11 of its potential returns per unit of risk. Imperial Petroleum is currently generating about -0.29 per unit of risk. If you would invest 109.00 in Houston American Energy on August 28, 2024 and sell it today you would earn a total of 29.00 from holding Houston American Energy or generate 26.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Houston American Energy vs. Imperial Petroleum
Performance |
| Timeline |
| Houston American Energy |
| Imperial Petroleum |
Houston American and Imperial Petroleum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Houston American and Imperial Petroleum
The main advantage of trading using opposite Houston American and Imperial Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Houston American position performs unexpectedly, Imperial Petroleum 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 Imperial Petroleum will offset losses from the drop in Imperial Petroleum's long position.| Houston American vs. Devon Energy | Houston American vs. ConocoPhillips | Houston American vs. Occidental Petroleum | Houston American vs. Permian Resources |
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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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