Correlation Between Sound Energy and Africa Energy
Can any of the company-specific risk be diversified away by investing in both Sound Energy and Africa 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 Sound Energy and Africa Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sound Energy plc and Africa Energy Corp, you can compare the effects of market volatilities on Sound Energy and Africa 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 Sound Energy with a short position of Africa Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sound Energy and Africa Energy.
Diversification Opportunities for Sound Energy and Africa Energy
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sound and Africa is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sound Energy plc and Africa Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Africa Energy Corp and Sound Energy 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 Sound Energy plc are associated (or correlated) with Africa Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Africa Energy Corp has no effect on the direction of Sound Energy i.e., Sound Energy and Africa Energy go up and down completely randomly.
Pair Corralation between Sound Energy and Africa Energy
Assuming the 90 days horizon Sound Energy plc is expected to generate 3.08 times more return on investment than Africa Energy. However, Sound Energy is 3.08 times more volatile than Africa Energy Corp. It trades about 0.05 of its potential returns per unit of risk. Africa Energy Corp is currently generating about -0.02 per unit of risk. If you would invest 2.00 in Sound Energy plc on September 1, 2024 and sell it today you would lose (1.59) from holding Sound Energy plc or give up 79.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Sound Energy plc vs. Africa Energy Corp
Performance |
| Timeline |
| Sound Energy plc |
| Africa Energy Corp |
Sound Energy and Africa Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sound Energy and Africa Energy
The main advantage of trading using opposite Sound Energy and Africa Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sound Energy position performs unexpectedly, Africa 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 Africa Energy will offset losses from the drop in Africa Energy's long position.| Sound Energy vs. Permian Resources | Sound Energy vs. Devon Energy | Sound Energy vs. EOG Resources | Sound Energy vs. Coterra Energy |
| Africa Energy vs. PetroShale | Africa Energy vs. Horizon Oil Limited | Africa Energy vs. Saturn Oil Gas | Africa Energy vs. San Leon 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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