Correlation Between Majic Wheels and Houston Natural

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

By analyzing existing cross correlation between Majic Wheels Corp and Houston Natural Resources, you can compare the effects of market volatilities on Majic Wheels and Houston Natural 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 Majic Wheels with a short position of Houston Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Majic Wheels and Houston Natural.

Diversification Opportunities for Majic Wheels and Houston Natural

-0.2

Correlation Coefficient

Majic Wheels  Houston Natural

Good diversification

The 3 months correlation between Majic and Houston is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Majic Wheels Corp and Houston Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston Natural Resources and Majic Wheels 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 Majic Wheels Corp are associated (or correlated) with Houston Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston Natural Resources has no effect on the direction of Majic Wheels i.e., Majic Wheels and Houston Natural go up and down completely randomly.

Pair Corralation between Majic Wheels and Houston Natural

If you would invest  1.00  in Houston Natural Resources on September 4, 2024 and sell it today you would earn a total of  0.80  from holding Houston Natural Resources or generate 80.0% return on investment over 90 days.

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

Majic Wheels Corp  vs.  Houston Natural Resources

Majic Wheels Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Majic Wheels Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Majic Wheels is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Houston Natural Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Houston Natural Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Houston Natural exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Majic Wheels and Houston Natural

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

The idea behind Majic Wheels Corp and Houston Natural Resources 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..