Correlation Between Africa Oil and Tethys Oil

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

Diversification Opportunities for Africa Oil and Tethys Oil

-0.12

Correlation Coefficient

Africa Oil  Tethys Oil

Good diversification

The 3 months correlation between Africa and Tethys is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Tethys Oil AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tethys Oil AB 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 Tethys Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tethys Oil AB has no effect on the direction of Africa Oil i.e., Africa Oil and Tethys Oil go up and down completely randomly.

Pair Corralation between Africa Oil and Tethys Oil

Assuming the 90 days trading horizon Africa Oil is expected to generate 25.96 times less return on investment than Tethys Oil. But when comparing it to its historical volatility, Africa Oil Corp is 4.44 times less risky than Tethys Oil. It trades about 0.02 of its potential returns per unit of risk. Tethys Oil AB is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,075  in Tethys Oil AB on September 1, 2024 and sell it today you would earn a total of  2,665  from holding Tethys Oil AB or generate 86.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Africa Oil Corp  vs.  Tethys Oil AB

Africa Oil Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Tethys Oil AB

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tethys Oil AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Tethys Oil unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Africa Oil and Tethys Oil

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

The idea behind Africa Oil Corp and Tethys Oil AB 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.