Correlation Between Sage Potash and Africa Oil

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

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

Diversification Opportunities for Sage Potash and Africa Oil

-0.31

Correlation Coefficient

Sage Potash  Africa Oil

Very good diversification

The 3 months correlation between Sage and Africa is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Sage Potash Corp 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 Sage Potash 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 Sage Potash Corp 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 Sage Potash i.e., Sage Potash and Africa Oil go up and down completely randomly.

Pair Corralation between Sage Potash and Africa Oil

Assuming the 90 days trading horizon Sage Potash Corp is expected to generate 2.69 times more return on investment than Africa Oil. However, Sage Potash is 2.69 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 0.02 per unit of risk. If you would invest  22.00  in Sage Potash Corp on September 4, 2024 and sell it today you would lose (1.00) from holding Sage Potash Corp or give up 4.55% of portfolio value over 90 days.

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

Sage Potash Corp  vs.  Africa Oil Corp

Sage Potash Corp

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Potash Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Sage Potash may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Africa Oil Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Africa Oil is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Sage Potash and Africa Oil

The main advantage of trading using opposite Sage Potash and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sage Potash 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 Sage Potash Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.