Correlation Between Houston Natural and Champion Iron

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

Diversification Opportunities for Houston Natural and Champion Iron

-0.06

Correlation Coefficient

Houston Natural  Champion Iron

Good diversification

The 3 months correlation between Houston and Champion is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Houston Natural Resources and Champion Iron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron Limited 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 Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron Limited has no effect on the direction of Houston Natural i.e., Houston Natural and Champion Iron go up and down completely randomly.

Pair Corralation between Houston Natural and Champion Iron

Given the investment horizon of 90 days Houston Natural Resources is expected to generate 4.68 times more return on investment than Champion Iron. However, Houston Natural is 4.68 times more volatile than Champion Iron Limited. It trades about 0.11 of its potential returns per unit of risk. Champion Iron Limited is currently generating about 0.17 per unit of risk. If you would invest  1.80  in Houston Natural Resources on October 24, 2024 and sell it today you would earn a total of  0.19  from holding Houston Natural Resources or generate 10.56% return on investment over 90 days.

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

Houston Natural Resources  vs.  Champion Iron Limited

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.

Champion Iron Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Champion Iron Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Champion Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Houston Natural and Champion Iron

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

The idea behind Houston Natural Resources and Champion Iron Limited 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.