Correlation Between NexPoint Hospitality and Falcon Energy

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

Diversification Opportunities for NexPoint Hospitality and Falcon Energy

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between NexPoint and Falcon is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding NexPoint Hospitality Trust and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials and NexPoint Hospitality 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 NexPoint Hospitality Trust are associated (or correlated) with Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of NexPoint Hospitality i.e., NexPoint Hospitality and Falcon Energy go up and down completely randomly.

Pair Corralation between NexPoint Hospitality and Falcon Energy

Assuming the 90 days trading horizon NexPoint Hospitality Trust is expected to generate 46.74 times more return on investment than Falcon Energy. However, NexPoint Hospitality is 46.74 times more volatile than Falcon Energy Materials. It trades about 0.21 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about 0.25 per unit of risk. If you would invest  1.50  in NexPoint Hospitality Trust on August 31, 2024 and sell it today you would earn a total of  29.50  from holding NexPoint Hospitality Trust or generate 1966.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

NexPoint Hospitality Trust  vs.  Falcon Energy Materials

 Performance 
       Timeline  
NexPoint Hospitality 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in NexPoint Hospitality Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, NexPoint Hospitality showed solid returns over the last few months and may actually be approaching a breakup point.
Falcon Energy Materials 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Falcon Energy showed solid returns over the last few months and may actually be approaching a breakup point.

NexPoint Hospitality and Falcon Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NexPoint Hospitality and Falcon Energy

The main advantage of trading using opposite NexPoint Hospitality and Falcon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NexPoint Hospitality position performs unexpectedly, Falcon 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 Falcon Energy will offset losses from the drop in Falcon Energy's long position.
The idea behind NexPoint Hospitality Trust and Falcon Energy Materials 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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