Correlation Between Houston American and Imperial Petroleum

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

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

Diversification Opportunities for Houston American and Imperial Petroleum

-0.64

Correlation Coefficient

Houston American  Imperial Petroleum

Excellent diversification

The 3 months correlation between Houston and Imperial is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Houston American Energy and Imperial Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Petroleum and Houston American 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 American Energy are associated (or correlated) with Imperial Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Petroleum has no effect on the direction of Houston American i.e., Houston American and Imperial Petroleum go up and down completely randomly.

Pair Corralation between Houston American and Imperial Petroleum

Given the investment horizon of 90 days Houston American Energy is expected to generate 3.77 times more return on investment than Imperial Petroleum. However, Houston American is 3.77 times more volatile than Imperial Petroleum. It trades about 0.08 of its potential returns per unit of risk. Imperial Petroleum is currently generating about -0.29 per unit of risk. If you would invest  112.00  in Houston American Energy on August 30, 2024 and sell it today you would earn a total of  26.00  from holding Houston American Energy or generate 23.21% return on investment over 90 days.

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

Houston American Energy  vs.  Imperial Petroleum

Houston American Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Houston American sustained solid returns over the last few months and may actually be approaching a breakup point.

Imperial Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Houston American and Imperial Petroleum

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

The idea behind Houston American Energy and Imperial Petroleum 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.