Correlation Between Foothills Exploration and Humble Energy

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

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

Diversification Opportunities for Foothills Exploration and Humble Energy

0.07

Correlation Coefficient

Foothills Exploration  Humble Energy

Significant diversification

The 3 months correlation between Foothills and Humble is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Foothills Exploration and Humble Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Humble Energy and Foothills Exploration 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 Foothills Exploration are associated (or correlated) with Humble Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Humble Energy has no effect on the direction of Foothills Exploration i.e., Foothills Exploration and Humble Energy go up and down completely randomly.

Pair Corralation between Foothills Exploration and Humble Energy

Given the investment horizon of 90 days Foothills Exploration is expected to generate 1.27 times more return on investment than Humble Energy. However, Foothills Exploration is 1.27 times more volatile than Humble Energy. It trades about 0.14 of its potential returns per unit of risk. Humble Energy is currently generating about 0.09 per unit of risk. If you would invest  0.02  in Foothills Exploration on January 26, 2024 and sell it today you would lose (0.01) from holding Foothills Exploration or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.73%
Values	Daily Returns

Foothills Exploration  vs.  Humble Energy

Foothills Exploration

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foothills Exploration are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Foothills Exploration reported solid returns over the last few months and may actually be approaching a breakup point.

Humble Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Humble Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Foothills Exploration and Humble Energy

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

The idea behind Foothills Exploration and Humble 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.