Correlation Between Africa Oil and Eco Atlantic
Can any of the company-specific risk be diversified away by investing in both Africa Oil and Eco Atlantic 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 Eco Atlantic 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 Eco Atlantic Oil, you can compare the effects of market volatilities on Africa Oil and Eco Atlantic 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 Eco Atlantic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Africa Oil and Eco Atlantic.
Diversification Opportunities for Africa Oil and Eco Atlantic
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Africa and Eco is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Eco Atlantic Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco Atlantic Oil 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 Eco Atlantic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco Atlantic Oil has no effect on the direction of Africa Oil i.e., Africa Oil and Eco Atlantic go up and down completely randomly.
Pair Corralation between Africa Oil and Eco Atlantic
Assuming the 90 days trading horizon Africa Oil Corp is expected to under-perform the Eco Atlantic. But the stock apears to be less risky and, when comparing its historical volatility, Africa Oil Corp is 2.05 times less risky than Eco Atlantic. The stock trades about -0.03 of its potential returns per unit of risk. The Eco Atlantic Oil is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 30.00 in Eco Atlantic Oil on September 2, 2024 and sell it today you would lose (12.00) from holding Eco Atlantic Oil or give up 40.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Africa Oil Corp vs. Eco Atlantic Oil
Performance |
| Timeline |
| Africa Oil Corp |
| Eco Atlantic Oil |
Africa Oil and Eco Atlantic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Africa Oil and Eco Atlantic
The main advantage of trading using opposite Africa Oil and Eco Atlantic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Africa Oil position performs unexpectedly, Eco Atlantic 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 Eco Atlantic will offset losses from the drop in Eco Atlantic's long position.The idea behind Africa Oil Corp and Eco Atlantic Oil 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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