Correlation Between Financial and Africa Energy

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

By analyzing existing cross correlation between Financial 15 Split and Africa Energy Corp, you can compare the effects of market volatilities on Financial and Africa 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 Financial with a short position of Africa Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and Africa Energy.

Diversification Opportunities for Financial and Africa Energy

-0.65

Correlation Coefficient

Financial  Africa Energy

Excellent diversification

The 3 months correlation between Financial and Africa is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and Africa Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Africa Energy Corp and Financial 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 Financial 15 Split are associated (or correlated) with Africa Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Africa Energy Corp has no effect on the direction of Financial i.e., Financial and Africa Energy go up and down completely randomly.

Pair Corralation between Financial and Africa Energy

Assuming the 90 days trading horizon Financial is expected to generate 1.45 times less return on investment than Africa Energy. But when comparing it to its historical volatility, Financial 15 Split is 35.11 times less risky than Africa Energy. It trades about 0.25 of its potential returns per unit of risk. Africa Energy Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Africa Energy Corp on August 31, 2024 and sell it today you would lose (0.50) from holding Africa Energy Corp or give up 16.67% of portfolio value over 90 days.

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

Financial 15 Split  vs.  Africa Energy Corp

Financial 15 Split

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Africa Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Financial and Africa Energy

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

The idea behind Financial 15 Split and Africa Energy 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.