Correlation Between Africa Oil and ConocoPhillips

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

Diversification Opportunities for Africa Oil and ConocoPhillips

0.23

Correlation Coefficient

Africa Oil  ConocoPhillips

Modest diversification

The 3 months correlation between Africa and ConocoPhillips is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips 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 ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of Africa Oil i.e., Africa Oil and ConocoPhillips go up and down completely randomly.

Pair Corralation between Africa Oil and ConocoPhillips

Assuming the 90 days horizon Africa Oil Corp is expected to generate 1.59 times more return on investment than ConocoPhillips. However, Africa Oil is 1.59 times more volatile than ConocoPhillips. It trades about 0.06 of its potential returns per unit of risk. ConocoPhillips is currently generating about -0.06 per unit of risk. If you would invest  135.00  in Africa Oil Corp on October 13, 2024 and sell it today you would earn a total of  10.00  from holding Africa Oil Corp or generate 7.41% 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.  ConocoPhillips

Africa Oil Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Africa Oil may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ConocoPhillips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ConocoPhillips has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, ConocoPhillips is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Africa Oil and ConocoPhillips

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

The idea behind Africa Oil Corp and ConocoPhillips 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.