Correlation Between PrimeEnergy and Houston American

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

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

Diversification Opportunities for PrimeEnergy and Houston American

0.47

Correlation Coefficient

PrimeEnergy  Houston American

Very weak diversification

The 3 months correlation between PrimeEnergy and Houston is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding PrimeEnergy 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 PrimeEnergy 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 PrimeEnergy 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 PrimeEnergy i.e., PrimeEnergy and Houston American go up and down completely randomly.

Pair Corralation between PrimeEnergy and Houston American

Given the investment horizon of 90 days PrimeEnergy is expected to generate 0.53 times more return on investment than Houston American. However, PrimeEnergy is 1.9 times less risky than Houston American. It trades about 0.08 of its potential returns per unit of risk. Houston American Energy is currently generating about 0.0 per unit of risk. If you would invest  10,957  in PrimeEnergy on September 20, 2024 and sell it today you would earn a total of  6,460  from holding PrimeEnergy or generate 58.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

PrimeEnergy  vs.  Houston American Energy

PrimeEnergy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, PrimeEnergy reported solid returns over the last few months and may actually be approaching a breakup point.

Houston American Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 6 (%) 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 PrimeEnergy and Houston American

The main advantage of trading using opposite PrimeEnergy and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PrimeEnergy 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 PrimeEnergy 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.

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.