Correlation Between Africa Oil and International Petroleum
Can any of the company-specific risk be diversified away by investing in both Africa Oil and International Petroleum 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 Africa Oil and International Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Africa Oil Corp and International Petroleum, you can compare the effects of market volatilities on Africa Oil and International Petroleum 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 Africa Oil with a short position of International Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Africa Oil and International Petroleum.
Diversification Opportunities for Africa Oil and International Petroleum
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Africa and International is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and International Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Petroleum and Africa 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 Africa Oil Corp are associated (or correlated) with International Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Petroleum has no effect on the direction of Africa Oil i.e., Africa Oil and International Petroleum go up and down completely randomly.
Pair Corralation between Africa Oil and International Petroleum
Assuming the 90 days trading horizon Africa Oil is expected to generate 4.09 times less return on investment than International Petroleum. In addition to that, Africa Oil is 1.19 times more volatile than International Petroleum. It trades about 0.1 of its total potential returns per unit of risk. International Petroleum is currently generating about 0.47 per unit of volatility. If you would invest 12,530 in International Petroleum on October 26, 2024 and sell it today you would earn a total of 2,190 from holding International Petroleum or generate 17.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Africa Oil Corp vs. International Petroleum
Performance |
| Timeline |
| Africa Oil Corp |
| International Petroleum |
Africa Oil and International Petroleum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Africa Oil and International Petroleum
The main advantage of trading using opposite Africa Oil and International Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Africa Oil position performs unexpectedly, International Petroleum 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 International Petroleum will offset losses from the drop in International Petroleum's long position.| Africa Oil vs. International Petroleum | Africa Oil vs. Africa Energy Corp | Africa Oil vs. Africa Oil Corp | Africa Oil vs. Lundin Mining |
| International Petroleum vs. Africa Oil Corp | International Petroleum vs. International Petroleum Corp | International Petroleum vs. Lundin Mining |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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