Correlation Between Houston Natural and Critic Clothing

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

Diversification Opportunities for Houston Natural and Critic Clothing

0.16

Correlation Coefficient

Houston Natural  Critic Clothing

Average diversification

The 3 months correlation between Houston and Critic is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Houston Natural Resources and Critic Clothing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critic Clothing 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 Critic Clothing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critic Clothing has no effect on the direction of Houston Natural i.e., Houston Natural and Critic Clothing go up and down completely randomly.

Pair Corralation between Houston Natural and Critic Clothing

Given the investment horizon of 90 days Houston Natural Resources is expected to generate 0.62 times more return on investment than Critic Clothing. However, Houston Natural Resources is 1.61 times less risky than Critic Clothing. It trades about 0.06 of its potential returns per unit of risk. Critic Clothing is currently generating about -0.1 per unit of risk. If you would invest  1.80  in Houston Natural Resources on September 13, 2024 and sell it today you would lose (0.10) from holding Houston Natural Resources or give up 5.56% of portfolio value over 90 days.

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

Houston Natural Resources  vs.  Critic Clothing

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.

Critic Clothing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Critic Clothing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Critic Clothing reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Houston Natural and Critic Clothing

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

The idea behind Houston Natural Resources and Critic Clothing 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.