Correlation Between Kimbell Royalty and Africa Oil

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

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

Diversification Opportunities for Kimbell Royalty and Africa Oil

0.54

Correlation Coefficient

Kimbell Royalty  Africa Oil

Very weak diversification

The 3 months correlation between Kimbell and Africa is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Kimbell Royalty Partners 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 Kimbell Royalty 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 Kimbell Royalty Partners 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 Kimbell Royalty i.e., Kimbell Royalty and Africa Oil go up and down completely randomly.

Pair Corralation between Kimbell Royalty and Africa Oil

Considering the 90-day investment horizon Kimbell Royalty Partners is expected to generate 0.64 times more return on investment than Africa Oil. However, Kimbell Royalty Partners is 1.57 times less risky than Africa Oil. It trades about 0.03 of its potential returns per unit of risk. Africa Oil Corp is currently generating about -0.01 per unit of risk. If you would invest  1,350  in Kimbell Royalty Partners on October 4, 2024 and sell it today you would earn a total of  291.00  from holding Kimbell Royalty Partners or generate 21.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Kimbell Royalty Partners  vs.  Africa Oil Corp

Kimbell Royalty Partners

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kimbell Royalty Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Kimbell Royalty is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 Kimbell Royalty and Africa Oil

The main advantage of trading using opposite Kimbell Royalty and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kimbell Royalty 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 Kimbell Royalty Partners 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.