Correlation Between Africa Oil and Devon Energy

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

Diversification Opportunities for Africa Oil and Devon Energy

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Africa and Devon is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Africa Oil i.e., Africa Oil and Devon Energy go up and down completely randomly.

Pair Corralation between Africa Oil and Devon Energy

Assuming the 90 days horizon Africa Oil Corp is expected to generate 1.4 times more return on investment than Devon Energy. However, Africa Oil is 1.4 times more volatile than Devon Energy. It trades about -0.03 of its potential returns per unit of risk. Devon Energy is currently generating about -0.08 per unit of risk. If you would invest  167.00  in Africa Oil Corp on October 13, 2024 and sell it today you would lose (22.00) from holding Africa Oil Corp or give up 13.17% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Africa Oil Corp  vs.  Devon Energy

 Performance 
       Timeline  
Africa Oil Corp 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
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.
Devon Energy 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Africa Oil and Devon Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Africa Oil and Devon Energy

The main advantage of trading using opposite Africa Oil and Devon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Africa Oil position performs unexpectedly, Devon 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 Devon Energy will offset losses from the drop in Devon Energy's long position.
The idea behind Africa Oil Corp and Devon Energy 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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