Correlation Between Africa Oil and Invictus Energy

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

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

Diversification Opportunities for Africa Oil and Invictus Energy

-0.2

Correlation Coefficient

Africa Oil  Invictus Energy

Good diversification

The 3 months correlation between Africa and Invictus is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Invictus Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invictus Energy and Africa Oil 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 Africa Oil Corp are associated (or correlated) with Invictus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invictus Energy has no effect on the direction of Africa Oil i.e., Africa Oil and Invictus Energy go up and down completely randomly.

Pair Corralation between Africa Oil and Invictus Energy

Assuming the 90 days horizon Africa Oil Corp is expected to under-perform the Invictus Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, Africa Oil Corp is 3.89 times less risky than Invictus Energy. The pink sheet trades about -0.29 of its potential returns per unit of risk. The Invictus Energy Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  4.50  in Invictus Energy Limited on September 23, 2024 and sell it today you would lose (0.60) from holding Invictus Energy Limited or give up 13.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Africa Oil Corp  vs.  Invictus Energy Limited

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.

Invictus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invictus Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Africa Oil and Invictus Energy

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

The idea behind Africa Oil Corp and Invictus Energy Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.