Correlation Between Sound Energy and Africa Energy

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

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

Diversification Opportunities for Sound Energy and Africa Energy

0.72

Correlation Coefficient

Sound Energy  Africa Energy

Poor diversification

The 3 months correlation between Sound and Africa is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sound Energy plc and Africa Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Africa Energy Corp and Sound 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 Sound Energy plc are associated (or correlated) with Africa Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Africa Energy Corp has no effect on the direction of Sound Energy i.e., Sound Energy and Africa Energy go up and down completely randomly.

Pair Corralation between Sound Energy and Africa Energy

Assuming the 90 days horizon Sound Energy plc is expected to generate 8.24 times more return on investment than Africa Energy. However, Sound Energy is 8.24 times more volatile than Africa Energy Corp. It trades about 0.15 of its potential returns per unit of risk. Africa Energy Corp is currently generating about 0.16 per unit of risk. If you would invest  0.41  in Sound Energy plc on December 1, 2024 and sell it today you would earn a total of  4.31  from holding Sound Energy plc or generate 1051.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.75%
Values	Daily Returns

Sound Energy plc  vs.  Africa Energy Corp

Sound Energy plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sound Energy plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Sound Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Africa Energy Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Energy Corp are ranked lower than 12 (%) 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.

Pair Trading with Sound Energy and Africa Energy

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

The idea behind Sound Energy plc and Africa Energy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.