Correlation Between Headwater Exploration and Tamarack Valley

Can any of the company-specific risk be diversified away by investing in both Headwater Exploration and Tamarack Valley 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 Headwater Exploration and Tamarack Valley into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Headwater Exploration and Tamarack Valley

0.85

Correlation Coefficient

Headwater Exploration  Tamarack Valley

Very poor diversification

The 3 months correlation between Headwater and Tamarack is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Headwater Exploration and Tamarack Valley Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tamarack Valley Energy and Headwater Exploration 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 Headwater Exploration are associated (or correlated) with Tamarack Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tamarack Valley Energy has no effect on the direction of Headwater Exploration i.e., Headwater Exploration and Tamarack Valley go up and down completely randomly.

Pair Corralation between Headwater Exploration and Tamarack Valley

Assuming the 90 days trading horizon Headwater Exploration is expected to generate 3.43 times less return on investment than Tamarack Valley. But when comparing it to its historical volatility, Headwater Exploration is 1.36 times less risky than Tamarack Valley. It trades about 0.05 of its potential returns per unit of risk. Tamarack Valley Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  381.00  in Tamarack Valley Energy on September 3, 2024 and sell it today you would earn a total of  65.00  from holding Tamarack Valley Energy or generate 17.06% return on investment over 90 days.

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

Headwater Exploration  vs.  Tamarack Valley Energy

Headwater Exploration

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Headwater Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Headwater Exploration is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Tamarack Valley Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tamarack Valley Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Tamarack Valley displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Headwater Exploration and Tamarack Valley

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

The idea behind Headwater Exploration and Tamarack Valley 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.