Correlation Between Houston American and Gran Tierra

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

Diversification Opportunities for Houston American and Gran Tierra

0.32

Correlation Coefficient

Houston American  Gran Tierra

Weak diversification

The 3 months correlation between Houston and Gran is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Houston American Energy and Gran Tierra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gran Tierra 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 Gran Tierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gran Tierra Energy has no effect on the direction of Houston American i.e., Houston American and Gran Tierra go up and down completely randomly.

Pair Corralation between Houston American and Gran Tierra

Given the investment horizon of 90 days Houston American Energy is expected to generate 2.1 times more return on investment than Gran Tierra. However, Houston American is 2.1 times more volatile than Gran Tierra Energy. It trades about 0.1 of its potential returns per unit of risk. Gran Tierra Energy is currently generating about 0.06 per unit of risk. If you would invest  104.00  in Houston American Energy on September 16, 2024 and sell it today you would earn a total of  35.00  from holding Houston American Energy or generate 33.65% return on investment over 90 days.

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

Houston American Energy  vs.  Gran Tierra Energy

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.

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.

Pair Trading with Houston American and Gran Tierra

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

The idea behind Houston American Energy and Gran Tierra 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.