Correlation Between US Energy and Houston American

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

Diversification Opportunities for US Energy and Houston American

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between USEG and Houston is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding US Energy Corp 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 US 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 US Energy Corp 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 US Energy i.e., US Energy and Houston American go up and down completely randomly.

Pair Corralation between US Energy and Houston American

Given the investment horizon of 90 days US Energy Corp is expected to generate 1.31 times more return on investment than Houston American. However, US Energy is 1.31 times more volatile than Houston American Energy. It trades about 0.15 of its potential returns per unit of risk. Houston American Energy is currently generating about 0.08 per unit of risk. If you would invest  165.00  in US Energy Corp on November 4, 2024 and sell it today you would earn a total of  54.00  from holding US Energy Corp or generate 32.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

US Energy Corp  vs.  Houston American Energy

 Performance 
       Timeline  
US Energy Corp 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in US Energy Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, US Energy reported solid returns over the last few months and may actually be approaching a breakup point.
Houston American Energy 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Houston American sustained solid returns over the last few months and may actually be approaching a breakup point.

US Energy and Houston American Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with US Energy and Houston American

The main advantage of trading using opposite US Energy and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US 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 US Energy Corp 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.
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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