Correlation Between Prime Energy and Homebiogas

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

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

Diversification Opportunities for Prime Energy and Homebiogas

-0.74

Correlation Coefficient

Prime Energy  Homebiogas

Pay attention - limited upside

The 3 months correlation between Prime and Homebiogas is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Prime Energy PE and Homebiogas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Homebiogas and Prime Energy 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 Prime Energy PE are associated (or correlated) with Homebiogas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Homebiogas has no effect on the direction of Prime Energy i.e., Prime Energy and Homebiogas go up and down completely randomly.

Pair Corralation between Prime Energy and Homebiogas

Assuming the 90 days trading horizon Prime Energy is expected to generate 1.51 times less return on investment than Homebiogas. But when comparing it to its historical volatility, Prime Energy PE is 3.6 times less risky than Homebiogas. It trades about 0.18 of its potential returns per unit of risk. Homebiogas is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,790  in Homebiogas on September 14, 2024 and sell it today you would earn a total of  2,400  from holding Homebiogas or generate 22.24% return on investment over 90 days.

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

Prime Energy PE  vs.  Homebiogas

Prime Energy PE

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Energy PE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Prime Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Homebiogas

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Prime Energy and Homebiogas

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

The idea behind Prime Energy PE and Homebiogas 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.