Correlation Between Africa Oil and Obayashi

Can any of the company-specific risk be diversified away by investing in both Africa Oil and Obayashi 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 Obayashi 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 Obayashi, you can compare the effects of market volatilities on Africa Oil and Obayashi 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 Obayashi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Africa Oil and Obayashi.

Diversification Opportunities for Africa Oil and Obayashi

0.33

Correlation Coefficient

Africa Oil  Obayashi

Weak diversification

The 3 months correlation between Africa and Obayashi is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Obayashi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obayashi 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 Obayashi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obayashi has no effect on the direction of Africa Oil i.e., Africa Oil and Obayashi go up and down completely randomly.

Pair Corralation between Africa Oil and Obayashi

Assuming the 90 days horizon Africa Oil is expected to generate 13.23 times less return on investment than Obayashi. In addition to that, Africa Oil is 1.06 times more volatile than Obayashi. It trades about 0.01 of its total potential returns per unit of risk. Obayashi is currently generating about 0.12 per unit of volatility. If you would invest  1,108  in Obayashi on September 23, 2024 and sell it today you would earn a total of  212.00  from holding Obayashi or generate 19.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Africa Oil Corp  vs.  Obayashi

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.

Obayashi

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Obayashi are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, Obayashi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Africa Oil and Obayashi

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

The idea behind Africa Oil Corp and Obayashi 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.