Correlation Between Avalon Holdings and Houston Natural

Can any of the company-specific risk be diversified away by investing in both Avalon Holdings and Houston Natural 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 Avalon Holdings and Houston Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Avalon Holdings and Houston Natural Resources, you can compare the effects of market volatilities on Avalon Holdings and Houston Natural 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 Avalon Holdings with a short position of Houston Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avalon Holdings and Houston Natural.

Diversification Opportunities for Avalon Holdings and Houston Natural

0.55

Correlation Coefficient

Avalon Holdings  Houston Natural

Very weak diversification

The 3 months correlation between Avalon and Houston is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Avalon Holdings and Houston Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston Natural Resources and Avalon Holdings 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 Avalon Holdings are associated (or correlated) with Houston Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston Natural Resources has no effect on the direction of Avalon Holdings i.e., Avalon Holdings and Houston Natural go up and down completely randomly.

Pair Corralation between Avalon Holdings and Houston Natural

Considering the 90-day investment horizon Avalon Holdings is expected to generate 5.39 times less return on investment than Houston Natural. But when comparing it to its historical volatility, Avalon Holdings is 4.42 times less risky than Houston Natural. It trades about 0.11 of its potential returns per unit of risk. Houston Natural Resources is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.99  in Houston Natural Resources on September 3, 2024 and sell it today you would earn a total of  0.81  from holding Houston Natural Resources or generate 81.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Avalon Holdings  vs.  Houston Natural Resources

Avalon Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avalon Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Avalon Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Houston Natural Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Houston Natural Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Houston Natural exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avalon Holdings and Houston Natural

The main advantage of trading using opposite Avalon Holdings and Houston Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avalon Holdings position performs unexpectedly, Houston Natural 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 Natural will offset losses from the drop in Houston Natural's long position.

The idea behind Avalon Holdings and Houston Natural Resources 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.