Correlation Between Spindletop and Africa Oil

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

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

Diversification Opportunities for Spindletop and Africa Oil

-0.17

Correlation Coefficient

Spindletop  Africa Oil

Good diversification

The 3 months correlation between Spindletop and Africa is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Spindletop OG 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 Spindletop 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 Spindletop OG 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 Spindletop i.e., Spindletop and Africa Oil go up and down completely randomly.

Pair Corralation between Spindletop and Africa Oil

Given the investment horizon of 90 days Spindletop OG is expected to under-perform the Africa Oil. In addition to that, Spindletop is 2.79 times more volatile than Africa Oil Corp. It trades about -0.12 of its total potential returns per unit of risk. Africa Oil Corp is currently generating about 0.05 per unit of volatility. If you would invest  135.00  in Africa Oil Corp on October 12, 2024 and sell it today you would earn a total of  8.00  from holding Africa Oil Corp or generate 5.93% return on investment over 90 days.

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

Spindletop OG  vs.  Africa Oil Corp

Spindletop OG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spindletop OG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Africa Oil Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Africa Oil may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Spindletop and Africa Oil

The main advantage of trading using opposite Spindletop and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spindletop 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 Spindletop OG 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.