Correlation Between Africa Oil and Vaalco Energy

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

Diversification Opportunities for Africa Oil and Vaalco Energy

0.01

Correlation Coefficient

Africa Oil  Vaalco Energy

Significant diversification

The 3 months correlation between Africa and Vaalco is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Vaalco Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaalco 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 Vaalco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaalco Energy has no effect on the direction of Africa Oil i.e., Africa Oil and Vaalco Energy go up and down completely randomly.

Pair Corralation between Africa Oil and Vaalco Energy

Assuming the 90 days horizon Africa Oil Corp is expected to generate 0.81 times more return on investment than Vaalco Energy. However, Africa Oil Corp is 1.23 times less risky than Vaalco Energy. It trades about -0.22 of its potential returns per unit of risk. Vaalco Energy is currently generating about -0.37 per unit of risk. If you would invest  141.00  in Africa Oil Corp on September 24, 2024 and sell it today you would lose (12.00) from holding Africa Oil Corp or give up 8.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Africa Oil Corp  vs.  Vaalco Energy

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.

Vaalco Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vaalco Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Africa Oil and Vaalco Energy

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

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