Correlation Between Africa Energy and Forza Petroleum

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

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

Diversification Opportunities for Africa Energy and Forza Petroleum

0.0

Correlation Coefficient

Africa Energy  Forza Petroleum

Pay attention - limited upside

The 3 months correlation between Africa and Forza is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Africa Energy Corp and Forza Petroleum Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forza Petroleum and Africa 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 Africa Energy Corp are associated (or correlated) with Forza Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forza Petroleum has no effect on the direction of Africa Energy i.e., Africa Energy and Forza Petroleum go up and down completely randomly.

Pair Corralation between Africa Energy and Forza Petroleum

If you would invest  14.00  in Forza Petroleum Limited on September 3, 2024 and sell it today you would earn a total of  0.00  from holding Forza Petroleum Limited or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Africa Energy Corp  vs.  Forza Petroleum Limited

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. Despite fragile performance in the last few months, the Stock's fundamental 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.

Forza Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forza Petroleum Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Forza Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Africa Energy and Forza Petroleum

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

The idea behind Africa Energy Corp and Forza Petroleum 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.