Correlation Between Africa Oil and Cathedral Energy

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

Diversification Opportunities for Africa Oil and Cathedral Energy

0.24

Correlation Coefficient

Africa Oil  Cathedral Energy

Modest diversification

The 3 months correlation between Africa and Cathedral is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Cathedral Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathedral Energy Services 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 Cathedral Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathedral Energy Services has no effect on the direction of Africa Oil i.e., Africa Oil and Cathedral Energy go up and down completely randomly.

Pair Corralation between Africa Oil and Cathedral Energy

Assuming the 90 days horizon Africa Oil is expected to generate 10.38 times less return on investment than Cathedral Energy. In addition to that, Africa Oil is 1.64 times more volatile than Cathedral Energy Services. It trades about 0.0 of its total potential returns per unit of risk. Cathedral Energy Services is currently generating about 0.07 per unit of volatility. If you would invest  411.00  in Cathedral Energy Services on September 23, 2024 and sell it today you would earn a total of  26.00  from holding Cathedral Energy Services or generate 6.33% return on investment over 90 days.

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

Africa Oil Corp  vs.  Cathedral Energy Services

Africa Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Africa Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Africa Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cathedral Energy Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathedral Energy Services are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Cathedral Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Africa Oil and Cathedral Energy

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

The idea behind Africa Oil Corp and Cathedral Energy Services 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..