Correlation Between BQE Water and Houston Natural

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

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

Diversification Opportunities for BQE Water and Houston Natural

-0.54

Correlation Coefficient

BQE Water  Houston Natural

Excellent diversification

The 3 months correlation between BQE and Houston is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding BQE Water and Houston Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston Natural Resources and BQE Water 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 BQE Water are associated (or correlated) with Houston Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston Natural Resources has no effect on the direction of BQE Water i.e., BQE Water and Houston Natural go up and down completely randomly.

Pair Corralation between BQE Water and Houston Natural

Assuming the 90 days horizon BQE Water is expected to under-perform the Houston Natural. But the pink sheet apears to be less risky and, when comparing its historical volatility, BQE Water is 11.03 times less risky than Houston Natural. The pink sheet trades about -0.13 of its potential returns per unit of risk. The Houston Natural Resources is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1.18  in Houston Natural Resources on September 13, 2024 and sell it today you would earn a total of  0.52  from holding Houston Natural Resources or generate 44.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

BQE Water  vs.  Houston Natural Resources

BQE Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BQE Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Houston Natural Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Houston Natural Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Houston Natural exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BQE Water and Houston Natural

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

The idea behind BQE Water and Houston Natural Resources 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.