Correlation Between MilDef Group and Africa Oil

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

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

Diversification Opportunities for MilDef Group and Africa Oil

-0.37

Correlation Coefficient

MilDef Group  Africa Oil

Very good diversification

The 3 months correlation between MilDef and Africa is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding MilDef Group AB 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 MilDef Group 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 MilDef Group AB 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 MilDef Group i.e., MilDef Group and Africa Oil go up and down completely randomly.

Pair Corralation between MilDef Group and Africa Oil

Assuming the 90 days trading horizon MilDef Group AB is expected to generate 1.91 times more return on investment than Africa Oil. However, MilDef Group is 1.91 times more volatile than Africa Oil Corp. It trades about 0.22 of its potential returns per unit of risk. Africa Oil Corp is currently generating about -0.07 per unit of risk. If you would invest  11,800  in MilDef Group AB on November 29, 2024 and sell it today you would earn a total of  6,420  from holding MilDef Group AB or generate 54.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

MilDef Group AB  vs.  Africa Oil Corp

MilDef Group AB

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MilDef Group AB are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, MilDef Group sustained solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest uncertain performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with MilDef Group and Africa Oil

The main advantage of trading using opposite MilDef Group and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MilDef Group 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 MilDef Group AB 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.