Correlation Between EON Resources and ERHC Energy

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

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

Diversification Opportunities for EON Resources and ERHC Energy

-0.44

Correlation Coefficient

EON Resources  ERHC Energy

Very good diversification

The 3 months correlation between EON and ERHC is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding EON Resources and ERHC Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ERHC Energy and EON Resources 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 EON Resources are associated (or correlated) with ERHC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ERHC Energy has no effect on the direction of EON Resources i.e., EON Resources and ERHC Energy go up and down completely randomly.

Pair Corralation between EON Resources and ERHC Energy

Given the investment horizon of 90 days EON Resources is expected to under-perform the ERHC Energy. But the stock apears to be less risky and, when comparing its historical volatility, EON Resources is 7.27 times less risky than ERHC Energy. The stock trades about -0.27 of its potential returns per unit of risk. The ERHC Energy is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  0.10  in ERHC Energy on September 4, 2024 and sell it today you would earn a total of  0.11  from holding ERHC Energy or generate 110.0% return on investment over 90 days.

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

EON Resources  vs.  ERHC Energy

EON Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EON Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, EON Resources is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

ERHC Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ERHC Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, ERHC Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EON Resources and ERHC Energy

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

The idea behind EON Resources and ERHC 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.