Correlation Between East West and Africa Oil
Can any of the company-specific risk be diversified away by investing in both East West and Africa Oil 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 East West and Africa Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East West Petroleum and Africa Oil Corp, you can compare the effects of market volatilities on East West and Africa Oil 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 East West with a short position of Africa Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Africa Oil.
Diversification Opportunities for East West and Africa Oil
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between East and Africa is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding East West Petroleum and Africa Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Africa Oil Corp and East West 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 East West Petroleum are associated (or correlated) with Africa Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Africa Oil Corp has no effect on the direction of East West i.e., East West and Africa Oil go up and down completely randomly.
Pair Corralation between East West and Africa Oil
Assuming the 90 days horizon East West Petroleum is expected to generate 10.64 times more return on investment than Africa Oil. However, East West is 10.64 times more volatile than Africa Oil Corp. It trades about 0.2 of its potential returns per unit of risk. Africa Oil Corp is currently generating about 0.31 per unit of risk. If you would invest 2.00 in East West Petroleum on October 15, 2024 and sell it today you would earn a total of 1.00 from holding East West Petroleum or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
East West Petroleum vs. Africa Oil Corp
Performance |
| Timeline |
| East West Petroleum |
| Africa Oil Corp |
East West and Africa Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and Africa Oil
The main advantage of trading using opposite East West and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, Africa Oil 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 Africa Oil will offset losses from the drop in Africa Oil's long position.| East West vs. Stamper Oil Gas | East West vs. Valeura Energy | East West vs. Invictus Energy Limited | East West vs. Africa Oil Corp |
| Africa Oil vs. Gear Energy | Africa Oil vs. Tamarack Valley Energy | Africa Oil vs. MEG Energy Corp | Africa Oil vs. Cardinal Energy |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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