Correlation Between CCL Industries and Africa Oil

Can any of the company-specific risk be diversified away by investing in both CCL Industries and Africa Oil 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 CCL Industries and Africa Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CCL Industries and Africa Oil Corp, you can compare the effects of market volatilities on CCL Industries and Africa Oil 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 CCL Industries with a short position of Africa Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of CCL Industries and Africa Oil.

Diversification Opportunities for CCL Industries and Africa Oil

0.27

Correlation Coefficient

CCL Industries  Africa Oil

Modest diversification

The 3 months correlation between CCL and Africa is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding CCL Industries and Africa Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Africa Oil Corp and CCL Industries 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 CCL Industries are associated (or correlated) with Africa Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Africa Oil Corp has no effect on the direction of CCL Industries i.e., CCL Industries and Africa Oil go up and down completely randomly.

Pair Corralation between CCL Industries and Africa Oil

Assuming the 90 days trading horizon CCL Industries is expected to under-perform the Africa Oil. But the stock apears to be less risky and, when comparing its historical volatility, CCL Industries is 2.26 times less risky than Africa Oil. The stock trades about -0.06 of its potential returns per unit of risk. The Africa Oil Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  187.00  in Africa Oil Corp on December 23, 2024 and sell it today you would earn a total of  31.00  from holding Africa Oil Corp or generate 16.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CCL Industries  vs.  Africa Oil Corp

CCL Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days CCL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CCL Industries is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Africa Oil Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Africa Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CCL Industries and Africa Oil

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

The idea behind CCL Industries and Africa Oil Corp 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.