Correlation Between Houston Natural and Atlantic Sapphire

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

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

Diversification Opportunities for Houston Natural and Atlantic Sapphire

0.23

Correlation Coefficient

Houston Natural  Atlantic Sapphire

Modest diversification

The 3 months correlation between Houston and Atlantic is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Houston Natural Resources and Atlantic Sapphire ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlantic Sapphire ASA and Houston Natural 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 Natural Resources are associated (or correlated) with Atlantic Sapphire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlantic Sapphire ASA has no effect on the direction of Houston Natural i.e., Houston Natural and Atlantic Sapphire go up and down completely randomly.

Pair Corralation between Houston Natural and Atlantic Sapphire

Given the investment horizon of 90 days Houston Natural Resources is expected to generate 0.6 times more return on investment than Atlantic Sapphire. However, Houston Natural Resources is 1.67 times less risky than Atlantic Sapphire. It trades about 0.03 of its potential returns per unit of risk. Atlantic Sapphire ASA is currently generating about -0.1 per unit of risk. If you would invest  1.63  in Houston Natural Resources on December 27, 2024 and sell it today you would lose (0.05) from holding Houston Natural Resources or give up 3.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	35.0%
Values	Daily Returns

Houston Natural Resources  vs.  Atlantic Sapphire ASA

Houston Natural Resources

Risk-Adjusted Performance

Weak

Over the last 90 days Houston Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Atlantic Sapphire ASA

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Houston Natural and Atlantic Sapphire

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

The idea behind Houston Natural Resources and Atlantic Sapphire ASA 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.