Correlation Between Lucero Energy and Headwater Exploration

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

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

Diversification Opportunities for Lucero Energy and Headwater Exploration

-0.7

Correlation Coefficient

Lucero Energy  Headwater Exploration

Excellent diversification

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

Pair Corralation between Lucero Energy and Headwater Exploration

Assuming the 90 days horizon Lucero Energy Corp is expected to under-perform the Headwater Exploration. In addition to that, Lucero Energy is 1.11 times more volatile than Headwater Exploration. It trades about -0.04 of its total potential returns per unit of risk. Headwater Exploration is currently generating about 0.05 per unit of volatility. 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

Lucero Energy Corp  vs.  Headwater Exploration

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.

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.

Pair Trading with Lucero Energy and Headwater Exploration

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

The idea behind Lucero Energy Corp and Headwater Exploration 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.