Correlation Between Headwater Exploration and Lucero Energy

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

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

Diversification Opportunities for Headwater Exploration and Lucero Energy

-0.7

Correlation Coefficient

Headwater Exploration  Lucero Energy

Excellent diversification

The 3 months correlation between Headwater and Lucero is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Headwater Exploration and Lucero Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lucero Energy Corp and Headwater Exploration 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 Headwater Exploration are associated (or correlated) with Lucero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lucero Energy Corp has no effect on the direction of Headwater Exploration i.e., Headwater Exploration and Lucero Energy go up and down completely randomly.

Pair Corralation between Headwater Exploration and Lucero Energy

Assuming the 90 days trading horizon Headwater Exploration is expected to generate 0.9 times more return on investment than Lucero Energy. However, Headwater Exploration is 1.11 times less risky than Lucero Energy. It trades about 0.05 of its potential returns per unit of risk. Lucero Energy Corp is currently generating about -0.04 per unit of risk. If you would invest  641.00  in Headwater Exploration on September 15, 2024 and sell it today you would earn a total of  29.00  from holding Headwater Exploration or generate 4.52% return on investment over 90 days.

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

Headwater Exploration  vs.  Lucero Energy Corp

Headwater Exploration

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Headwater Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Headwater Exploration is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Lucero Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lucero Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lucero Energy is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Headwater Exploration and Lucero Energy

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

The idea behind Headwater Exploration and Lucero Energy Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.