Correlation Between Dmc Global and Houston American

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

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

Diversification Opportunities for Dmc Global and Houston American

0.25

Correlation Coefficient

Dmc Global  Houston American

Modest diversification

The 3 months correlation between Dmc and Houston is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Dmc Global 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 Dmc Global 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 Dmc Global 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 Dmc Global i.e., Dmc Global and Houston American go up and down completely randomly.

Pair Corralation between Dmc Global and Houston American

Given the investment horizon of 90 days Dmc Global is expected to generate 2.06 times more return on investment than Houston American. However, Dmc Global is 2.06 times more volatile than Houston American Energy. It trades about 0.17 of its potential returns per unit of risk. Houston American Energy is currently generating about -0.4 per unit of risk. If you would invest  1,300  in Dmc Global on March 19, 2024 and sell it today you would earn a total of  150.00  from holding Dmc Global or generate 11.54% return on investment over 90 days.

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

Dmc Global  vs.  Houston American Energy

Dmc Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dmc Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Houston American Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Houston American Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Houston American is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dmc Global and Houston American

The main advantage of trading using opposite Dmc Global and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dmc Global 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 Dmc Global 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.