Correlation Between Houston American and CGX Energy
Can any of the company-specific risk be diversified away by investing in both Houston American and CGX 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 Houston American and CGX Energy 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 CGX Energy, you can compare the effects of market volatilities on Houston American and CGX 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 Houston American with a short position of CGX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Houston American and CGX Energy.
Diversification Opportunities for Houston American and CGX Energy
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Houston and CGX is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Houston American Energy and CGX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGX Energy 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 CGX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGX Energy has no effect on the direction of Houston American i.e., Houston American and CGX Energy go up and down completely randomly.
Pair Corralation between Houston American and CGX Energy
Given the investment horizon of 90 days Houston American is expected to generate 1.05 times less return on investment than CGX Energy. But when comparing it to its historical volatility, Houston American Energy is 1.21 times less risky than CGX Energy. It trades about 0.1 of its potential returns per unit of risk. CGX Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 10.00 in CGX Energy on September 16, 2024 and sell it today you would earn a total of 3.00 from holding CGX Energy or generate 30.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Houston American Energy vs. CGX Energy
Performance |
Timeline |
Houston American Energy |
CGX Energy |
Houston American and CGX Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Houston American and CGX Energy
The main advantage of trading using opposite Houston American and CGX Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Houston American position performs unexpectedly, CGX 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 CGX Energy will offset losses from the drop in CGX Energy's long position.Houston American vs. Indonesia Energy | ||
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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