Correlation Between Africa Oil and Forum Energy

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

Diversification Opportunities for Africa Oil and Forum Energy

-0.31

Correlation Coefficient

Africa Oil  Forum Energy

Very good diversification

The 3 months correlation between Africa and Forum is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Forum Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forum Energy Metals 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 Forum Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forum Energy Metals has no effect on the direction of Africa Oil i.e., Africa Oil and Forum Energy go up and down completely randomly.

Pair Corralation between Africa Oil and Forum Energy

Assuming the 90 days trading horizon Africa Oil Corp is expected to generate 0.39 times more return on investment than Forum Energy. However, Africa Oil Corp is 2.57 times less risky than Forum Energy. It trades about 0.04 of its potential returns per unit of risk. Forum Energy Metals is currently generating about 0.0 per unit of risk. If you would invest  188.00  in Africa Oil Corp on August 31, 2024 and sell it today you would earn a total of  9.00  from holding Africa Oil Corp or generate 4.79% return on investment over 90 days.

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

Africa Oil Corp  vs.  Forum Energy Metals

Africa Oil Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal forward indicators, Africa Oil may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Forum Energy Metals

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Forum Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Forum Energy is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Africa Oil and Forum Energy

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

The idea behind Africa Oil Corp and Forum Energy Metals 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.