Correlation Between Forum Energy and Africa Oil

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

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

Diversification Opportunities for Forum Energy and Africa Oil

0.08

Correlation Coefficient

Forum Energy  Africa Oil

Significant diversification

The 3 months correlation between Forum and Africa is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Forum Energy Metals 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 Forum Energy 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 Forum Energy Metals 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 Forum Energy i.e., Forum Energy and Africa Oil go up and down completely randomly.

Pair Corralation between Forum Energy and Africa Oil

Assuming the 90 days horizon Forum Energy is expected to generate 6.4 times less return on investment than Africa Oil. In addition to that, Forum Energy is 2.78 times more volatile than Africa Oil Corp. It trades about 0.01 of its total potential returns per unit of risk. Africa Oil Corp is currently generating about 0.13 per unit of volatility. If you would invest  160.00  in Africa Oil Corp on December 29, 2024 and sell it today you would earn a total of  46.00  from holding Africa Oil Corp or generate 28.75% return on investment over 90 days.

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

Forum Energy Metals  vs.  Africa Oil Corp

Forum Energy Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Forum Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Forum Energy is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated 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 10 (%) 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 Forum Energy and Africa Oil

The main advantage of trading using opposite Forum Energy and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Forum Energy 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 Forum Energy Metals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.