Correlation Between Quality Houses and Energy Absolute

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

By analyzing existing cross correlation between Quality Houses Hotel and Energy Absolute Public, you can compare the effects of market volatilities on Quality Houses and Energy Absolute 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 Quality Houses with a short position of Energy Absolute. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quality Houses and Energy Absolute.

Diversification Opportunities for Quality Houses and Energy Absolute

0.21

Correlation Coefficient

Quality Houses  Energy Absolute

Modest diversification

The 3 months correlation between Quality and Energy is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Quality Houses Hotel and Energy Absolute Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Absolute Public and Quality Houses 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 Quality Houses Hotel are associated (or correlated) with Energy Absolute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Absolute Public has no effect on the direction of Quality Houses i.e., Quality Houses and Energy Absolute go up and down completely randomly.

Pair Corralation between Quality Houses and Energy Absolute

Assuming the 90 days trading horizon Quality Houses Hotel is expected to under-perform the Energy Absolute. In addition to that, Quality Houses is 5.78 times more volatile than Energy Absolute Public. It trades about -0.21 of its total potential returns per unit of risk. Energy Absolute Public is currently generating about -0.42 per unit of volatility. If you would invest  770.00  in Energy Absolute Public on August 31, 2024 and sell it today you would lose (230.00) from holding Energy Absolute Public or give up 29.87% of portfolio value over 90 days.

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

Quality Houses Hotel  vs.  Energy Absolute Public

Quality Houses Hotel

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Quality Houses Hotel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Quality Houses disclosed solid returns over the last few months and may actually be approaching a breakup point.

Energy Absolute Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Absolute Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Quality Houses and Energy Absolute

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

The idea behind Quality Houses Hotel and Energy Absolute Public 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.