Correlation Between Pine Cliff and Africa Oil

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

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

Diversification Opportunities for Pine Cliff and Africa Oil

-0.31

Correlation Coefficient

Pine Cliff  Africa Oil

Very good diversification

The 3 months correlation between Pine and Africa is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Pine Cliff Energy 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 Pine Cliff 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 Pine Cliff Energy 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 Pine Cliff i.e., Pine Cliff and Africa Oil go up and down completely randomly.

Pair Corralation between Pine Cliff and Africa Oil

Assuming the 90 days trading horizon Pine Cliff is expected to generate 2.48 times less return on investment than Africa Oil. But when comparing it to its historical volatility, Pine Cliff Energy is 1.04 times less risky than Africa Oil. It trades about 0.07 of its potential returns per unit of risk. Africa Oil Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  179.00  in Africa Oil Corp on September 1, 2024 and sell it today you would earn a total of  18.00  from holding Africa Oil Corp or generate 10.06% return on investment over 90 days.

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

Pine Cliff Energy  vs.  Africa Oil Corp

Pine Cliff Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pine Cliff Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Pine Cliff is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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. In spite of very unfluctuating forward indicators, Africa Oil may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Pine Cliff and Africa Oil

The main advantage of trading using opposite Pine Cliff and Africa Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pine Cliff 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 Pine Cliff Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.