Correlation Between Tamarack Valley and Headwater Exploration

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

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

Diversification Opportunities for Tamarack Valley and Headwater Exploration

0.91

Correlation Coefficient

Tamarack Valley  Headwater Exploration

Almost no diversification

The 3 months correlation between Tamarack and Headwater is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Tamarack Valley Energy and Headwater Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Headwater Exploration and Tamarack Valley 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 Tamarack Valley Energy 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 Tamarack Valley i.e., Tamarack Valley and Headwater Exploration go up and down completely randomly.

Pair Corralation between Tamarack Valley and Headwater Exploration

Assuming the 90 days horizon Tamarack Valley Energy is expected to under-perform the Headwater Exploration. But the pink sheet apears to be less risky and, when comparing its historical volatility, Tamarack Valley Energy is 1.03 times less risky than Headwater Exploration. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Headwater Exploration is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  459.00  in Headwater Exploration on December 30, 2024 and sell it today you would lose (10.00) from holding Headwater Exploration or give up 2.18% of portfolio value over 90 days.

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

Tamarack Valley Energy  vs.  Headwater Exploration

Tamarack Valley Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tamarack Valley Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Headwater Exploration

Risk-Adjusted Performance

Very Weak

Over the last 90 days Headwater Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Headwater Exploration is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tamarack Valley and Headwater Exploration

The main advantage of trading using opposite Tamarack Valley and Headwater Exploration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tamarack Valley 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 Tamarack Valley Energy 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.