Correlation Between Journey Energy and Africa Oil

Can any of the company-specific risk be diversified away by investing in both Journey 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 Journey 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 Journey Energy and Africa Oil Corp, you can compare the effects of market volatilities on Journey 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 Journey Energy with a short position of Africa Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Journey Energy and Africa Oil.

Diversification Opportunities for Journey Energy and Africa Oil

0.63

Correlation Coefficient

Journey Energy  Africa Oil

Poor diversification

The 3 months correlation between Journey and Africa is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Journey Energy 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 Journey 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 Journey Energy 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 Journey Energy i.e., Journey Energy and Africa Oil go up and down completely randomly.

Pair Corralation between Journey Energy and Africa Oil

Assuming the 90 days horizon Journey Energy is expected to generate 1.31 times more return on investment than Africa Oil. However, Journey Energy is 1.31 times more volatile than Africa Oil Corp. It trades about -0.02 of its potential returns per unit of risk. Africa Oil Corp is currently generating about -0.05 per unit of risk. If you would invest  146.00  in Journey Energy on November 20, 2024 and sell it today you would lose (9.00) from holding Journey Energy or give up 6.16% of portfolio value over 90 days.

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

Journey Energy  vs.  Africa Oil Corp

Journey Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Journey Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Journey Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Africa Oil Corp

Risk-Adjusted Performance

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 latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Journey Energy and Africa Oil

The main advantage of trading using opposite Journey Energy and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Journey 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 Journey Energy 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.