Correlation Between Africa Oil and Kimbell Royalty

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

Diversification Opportunities for Africa Oil and Kimbell Royalty

0.54

Correlation Coefficient

Africa Oil  Kimbell Royalty

Very weak diversification

The 3 months correlation between Africa and Kimbell is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Kimbell Royalty Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimbell Royalty Partners 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 Kimbell Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimbell Royalty Partners has no effect on the direction of Africa Oil i.e., Africa Oil and Kimbell Royalty go up and down completely randomly.

Pair Corralation between Africa Oil and Kimbell Royalty

Assuming the 90 days horizon Africa Oil Corp is expected to under-perform the Kimbell Royalty. In addition to that, Africa Oil is 1.57 times more volatile than Kimbell Royalty Partners. It trades about -0.01 of its total potential returns per unit of risk. Kimbell Royalty Partners is currently generating about 0.03 per unit of volatility. If you would invest  1,350  in Kimbell Royalty Partners on October 4, 2024 and sell it today you would earn a total of  291.00  from holding Kimbell Royalty Partners or generate 21.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Africa Oil Corp  vs.  Kimbell Royalty Partners

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.

Kimbell Royalty Partners

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kimbell Royalty Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Kimbell Royalty is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Africa Oil and Kimbell Royalty

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

The idea behind Africa Oil Corp and Kimbell Royalty Partners 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .