Correlation Between Africa Oil and AAC Clyde

Can any of the company-specific risk be diversified away by investing in both Africa Oil and AAC Clyde 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 AAC Clyde 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 AAC Clyde Space, you can compare the effects of market volatilities on Africa Oil and AAC Clyde 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 AAC Clyde. Check out your portfolio center. Please also check ongoing floating volatility patterns of Africa Oil and AAC Clyde.

Diversification Opportunities for Africa Oil and AAC Clyde

-0.48

Correlation Coefficient

Africa Oil  AAC Clyde

Very good diversification

The 3 months correlation between Africa and AAC is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and AAC Clyde Space in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAC Clyde Space 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 AAC Clyde. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAC Clyde Space has no effect on the direction of Africa Oil i.e., Africa Oil and AAC Clyde go up and down completely randomly.

Pair Corralation between Africa Oil and AAC Clyde

Assuming the 90 days trading horizon Africa Oil is expected to generate 35.65 times less return on investment than AAC Clyde. But when comparing it to its historical volatility, Africa Oil Corp is 2.03 times less risky than AAC Clyde. It trades about 0.01 of its potential returns per unit of risk. AAC Clyde Space is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,635  in AAC Clyde Space on December 29, 2024 and sell it today you would earn a total of  2,545  from holding AAC Clyde Space or generate 54.91% return on investment over 90 days.

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

Africa Oil Corp  vs.  AAC Clyde Space

Africa Oil Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Africa Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Africa Oil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

AAC Clyde Space

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AAC Clyde Space are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, AAC Clyde unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Africa Oil and AAC Clyde

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

The idea behind Africa Oil Corp and AAC Clyde Space 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.