Correlation Between EQT and Africa Oil

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

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

Diversification Opportunities for EQT and Africa Oil

0.48

Correlation Coefficient

EQT  Africa Oil

Very weak diversification

The 3 months correlation between EQT and Africa is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding EQT Corp. 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 EQT 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 EQT Corporation 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 EQT i.e., EQT and Africa Oil go up and down completely randomly.

Pair Corralation between EQT and Africa Oil

Considering the 90-day investment horizon EQT Corporation is expected to generate 0.95 times more return on investment than Africa Oil. However, EQT Corporation is 1.06 times less risky than Africa Oil. It trades about -0.15 of its potential returns per unit of risk. Africa Oil Corp is currently generating about -0.22 per unit of risk. If you would invest  4,599  in EQT Corporation on September 24, 2024 and sell it today you would lose (265.00) from holding EQT Corporation or give up 5.76% of portfolio value over 90 days.

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

EQT Corp.  vs.  Africa Oil Corp

EQT Corporation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EQT Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, EQT unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with EQT and Africa Oil

The main advantage of trading using opposite EQT and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EQT 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 EQT Corporation 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.