Correlation Between Africa Oil and Gear Energy

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

Diversification Opportunities for Africa Oil and Gear Energy

-0.18

Correlation Coefficient

Africa Oil  Gear Energy

Good diversification

The 3 months correlation between Africa and Gear is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear 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 Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of Africa Oil i.e., Africa Oil and Gear Energy go up and down completely randomly.

Pair Corralation between Africa Oil and Gear Energy

Assuming the 90 days horizon Africa Oil Corp is expected to generate 0.86 times more return on investment than Gear Energy. However, Africa Oil Corp is 1.17 times less risky than Gear Energy. It trades about 0.07 of its potential returns per unit of risk. Gear Energy is currently generating about -0.07 per unit of risk. If you would invest  132.00  in Africa Oil Corp on December 29, 2024 and sell it today you would earn a total of  12.00  from holding Africa Oil Corp or generate 9.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	45.9%
Values	Daily Returns

Africa Oil Corp  vs.  Gear Energy

Africa Oil Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 5 (%) 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 April 2025.

Gear Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Africa Oil and Gear Energy

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

The idea behind Africa Oil Corp and Gear 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.