Correlation Between Africa Energy and Horizon Oil

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

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

Diversification Opportunities for Africa Energy and Horizon Oil

0.49

Correlation Coefficient

Africa Energy  Horizon Oil

Very weak diversification

The 3 months correlation between Africa and Horizon is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Africa Energy Corp and Horizon Oil Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Oil Limited and Africa 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 Africa Energy Corp are associated (or correlated) with Horizon Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Oil Limited has no effect on the direction of Africa Energy i.e., Africa Energy and Horizon Oil go up and down completely randomly.

Pair Corralation between Africa Energy and Horizon Oil

Assuming the 90 days horizon Africa Energy Corp is expected to generate 1.06 times more return on investment than Horizon Oil. However, Africa Energy is 1.06 times more volatile than Horizon Oil Limited. It trades about 0.12 of its potential returns per unit of risk. Horizon Oil Limited is currently generating about 0.12 per unit of risk. If you would invest  1.70  in Africa Energy Corp on December 29, 2024 and sell it today you would earn a total of  0.80  from holding Africa Energy Corp or generate 47.06% return on investment over 90 days.

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

Africa Energy Corp  vs.  Horizon Oil Limited

Africa Energy Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Energy Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Africa Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Horizon Oil Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Oil Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Horizon Oil reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Africa Energy and Horizon Oil

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

The idea behind Africa Energy Corp and Horizon Oil Limited 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.