Correlation Between Gear Energy and Africa Energy

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

Diversification Opportunities for Gear Energy and Africa Energy

0.55

Correlation Coefficient

Gear Energy  Africa Energy

Very weak diversification

The 3 months correlation between Gear and Africa is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Gear Energy 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 Gear 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 Gear Energy 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 Gear Energy i.e., Gear Energy and Africa Energy go up and down completely randomly.

Pair Corralation between Gear Energy and Africa Energy

Assuming the 90 days trading horizon Gear Energy is expected to under-perform the Africa Energy. But the stock apears to be less risky and, when comparing its historical volatility, Gear Energy is 3.19 times less risky than Africa Energy. The stock trades about -0.09 of its potential returns per unit of risk. The Africa Energy Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Africa Energy Corp on September 12, 2024 and sell it today you would lose (0.50) from holding Africa Energy Corp or give up 16.67% of portfolio value over 90 days.

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

Gear Energy  vs.  Africa Energy Corp

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Africa Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Africa Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, Africa Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gear Energy and Africa Energy

The main advantage of trading using opposite Gear Energy and Africa Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gear 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 Gear Energy 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.

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..