Correlation Between Houston American and Indonesia Energy

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

Diversification Opportunities for Houston American and Indonesia Energy

0.78

Correlation Coefficient

Houston American  Indonesia Energy

Poor diversification

The 3 months correlation between Houston and Indonesia is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Houston American Energy and Indonesia Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indonesia 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 Indonesia Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indonesia Energy has no effect on the direction of Houston American i.e., Houston American and Indonesia Energy go up and down completely randomly.

Pair Corralation between Houston American and Indonesia Energy

Given the investment horizon of 90 days Houston American is expected to generate 4.98 times less return on investment than Indonesia Energy. But when comparing it to its historical volatility, Houston American Energy is 1.91 times less risky than Indonesia Energy. It trades about 0.03 of its potential returns per unit of risk. Indonesia Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  230.00  in Indonesia Energy on March 3, 2024 and sell it today you would earn a total of  79.00  from holding Indonesia Energy or generate 34.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Houston American Energy  vs.  Indonesia Energy

Houston American Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 2 (%) 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.

Indonesia Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Indonesia Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Indonesia Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Houston American and Indonesia Energy

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

The idea behind Houston American Energy and Indonesia 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.