Correlation Between San Juan and Houston American

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

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

Diversification Opportunities for San Juan and Houston American

0.22

Correlation Coefficient

San Juan  Houston American

Modest diversification

The 3 months correlation between San and Houston is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin 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 San Juan 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 San Juan Basin 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 San Juan i.e., San Juan and Houston American go up and down completely randomly.

Pair Corralation between San Juan and Houston American

Considering the 90-day investment horizon San Juan is expected to generate 14.56 times less return on investment than Houston American. But when comparing it to its historical volatility, San Juan Basin is 2.15 times less risky than Houston American. It trades about 0.01 of its potential returns per unit of risk. Houston American Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  103.00  in Houston American Energy on September 24, 2024 and sell it today you would earn a total of  17.00  from holding Houston American Energy or generate 16.5% return on investment over 90 days.

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

San Juan Basin  vs.  Houston American Energy

San Juan Basin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days San Juan Basin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking indicators, San Juan is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Houston American Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Houston American sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with San Juan and Houston American

The main advantage of trading using opposite San Juan and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if San Juan 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 San Juan Basin 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.