Correlation Between Gran Tierra and Houston American

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

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

Diversification Opportunities for Gran Tierra and Houston American

0.32

Correlation Coefficient

Gran Tierra  Houston American

Weak diversification

The 3 months correlation between Gran and Houston is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Gran Tierra Energy 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 Gran Tierra 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 Gran Tierra Energy 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 Gran Tierra i.e., Gran Tierra and Houston American go up and down completely randomly.

Pair Corralation between Gran Tierra and Houston American

Considering the 90-day investment horizon Gran Tierra Energy is expected to generate 0.67 times more return on investment than Houston American. However, Gran Tierra Energy is 1.48 times less risky than Houston American. It trades about 0.0 of its potential returns per unit of risk. Houston American Energy is currently generating about -0.01 per unit of risk. If you would invest  957.00  in Gran Tierra Energy on September 16, 2024 and sell it today you would lose (280.00) from holding Gran Tierra Energy or give up 29.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Gran Tierra Energy  vs.  Houston American Energy

Gran Tierra Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gran Tierra Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gran Tierra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Houston American Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 8 (%) 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.

Pair Trading with Gran Tierra and Houston American

The main advantage of trading using opposite Gran Tierra and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gran Tierra 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 Gran Tierra Energy 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.