Correlation Between Houston Natural and Hermes International

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

By analyzing existing cross correlation between Houston Natural Resources and Hermes International SCA, you can compare the effects of market volatilities on Houston Natural and Hermes International 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 Houston Natural with a short position of Hermes International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Houston Natural and Hermes International.

Diversification Opportunities for Houston Natural and Hermes International

0.25

Correlation Coefficient

Houston Natural  Hermes International

Modest diversification

The 3 months correlation between Houston and Hermes is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Houston Natural Resources and Hermes International SCA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International SCA and Houston Natural 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 Houston Natural Resources are associated (or correlated) with Hermes International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hermes International SCA has no effect on the direction of Houston Natural i.e., Houston Natural and Hermes International go up and down completely randomly.

Pair Corralation between Houston Natural and Hermes International

Given the investment horizon of 90 days Houston Natural Resources is expected to under-perform the Hermes International. In addition to that, Houston Natural is 5.87 times more volatile than Hermes International SCA. It trades about -0.15 of its total potential returns per unit of risk. Hermes International SCA is currently generating about -0.1 per unit of volatility. If you would invest  247,033  in Hermes International SCA on February 24, 2024 and sell it today you would lose (11,632) from holding Hermes International SCA or give up 4.71% of portfolio value over 90 days.

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

Houston Natural Resources  vs.  Hermes International SCA

Houston Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Houston Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Hermes International SCA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Houston Natural and Hermes International

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

The idea behind Houston Natural Resources and Hermes International SCA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.