Correlation Between Battalion Oil and Houston American

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

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

Diversification Opportunities for Battalion Oil and Houston American

-0.27

Correlation Coefficient

Battalion Oil  Houston American

Very good diversification

The 3 months correlation between Battalion and Houston is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Battalion Oil Corp and Houston American Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston American Energy and Battalion Oil 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 Battalion Oil Corp are associated (or correlated) with Houston American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston American Energy has no effect on the direction of Battalion Oil i.e., Battalion Oil and Houston American go up and down completely randomly.

Pair Corralation between Battalion Oil and Houston American

Given the investment horizon of 90 days Battalion Oil is expected to generate 3.18 times less return on investment than Houston American. But when comparing it to its historical volatility, Battalion Oil Corp is 1.79 times less risky than Houston American. It trades about 0.01 of its potential returns per unit of risk. Houston American Energy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  146.00  in Houston American Energy on February 18, 2024 and sell it today you would lose (8.00) from holding Houston American Energy or give up 5.48% of portfolio value over 90 days.

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

Battalion Oil Corp  vs.  Houston American Energy

Battalion Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Houston American Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Houston American may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Battalion Oil and Houston American

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

The idea behind Battalion Oil Corp and Houston American Energy 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.