Correlation Between American Security and Westbridge Energy

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

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

Diversification Opportunities for American Security and Westbridge Energy

-0.1

Correlation Coefficient

American Security  Westbridge Energy

Good diversification

The 3 months correlation between American and Westbridge is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding American Security Resources and Westbridge Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westbridge Energy and American Security 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 American Security Resources are associated (or correlated) with Westbridge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westbridge Energy has no effect on the direction of American Security i.e., American Security and Westbridge Energy go up and down completely randomly.

Pair Corralation between American Security and Westbridge Energy

Given the investment horizon of 90 days American Security Resources is expected to under-perform the Westbridge Energy. In addition to that, American Security is 8.54 times more volatile than Westbridge Energy. It trades about -0.22 of its total potential returns per unit of risk. Westbridge Energy is currently generating about -0.2 per unit of volatility. If you would invest  57.00  in Westbridge Energy on October 25, 2024 and sell it today you would lose (3.00) from holding Westbridge Energy or give up 5.26% of portfolio value over 90 days.

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

American Security Resources  vs.  Westbridge Energy

American Security

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Security Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, American Security exhibited solid returns over the last few months and may actually be approaching a breakup point.

Westbridge Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westbridge Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with American Security and Westbridge Energy

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

The idea behind American Security Resources and Westbridge 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.