Correlation Between Afcon Holdings and Bazan Oil

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Can any of the company-specific risk be diversified away by investing in both Afcon Holdings and Bazan 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 Afcon Holdings and Bazan Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Afcon Holdings and Bazan Oil Refineries, you can compare the effects of market volatilities on Afcon Holdings and Bazan 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 Afcon Holdings with a short position of Bazan Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Afcon Holdings and Bazan Oil.

Diversification Opportunities for Afcon Holdings and Bazan Oil

0.06
  Correlation Coefficient

Significant diversification

The 3 months correlation between Afcon and Bazan is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Afcon Holdings and Bazan Oil Refineries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bazan Oil Refineries and Afcon Holdings 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 Afcon Holdings are associated (or correlated) with Bazan Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bazan Oil Refineries has no effect on the direction of Afcon Holdings i.e., Afcon Holdings and Bazan Oil go up and down completely randomly.

Pair Corralation between Afcon Holdings and Bazan Oil

Assuming the 90 days trading horizon Afcon Holdings is expected to generate 0.26 times more return on investment than Bazan Oil. However, Afcon Holdings is 3.85 times less risky than Bazan Oil. It trades about -0.28 of its potential returns per unit of risk. Bazan Oil Refineries is currently generating about -0.16 per unit of risk. If you would invest  1,033,000  in Afcon Holdings on December 30, 2023 and sell it today you would lose (60,800) from holding Afcon Holdings or give up 5.89% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy94.74%
ValuesDaily Returns

Afcon Holdings  vs.  Bazan Oil Refineries

 Performance 
       Timeline  
Afcon Holdings 

Risk-Adjusted Performance

0 of 100

 
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High
Very Weak
Over the last 90 days Afcon Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Afcon Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Bazan Oil Refineries 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Bazan Oil Refineries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bazan Oil may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Afcon Holdings and Bazan Oil Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Afcon Holdings and Bazan Oil

The main advantage of trading using opposite Afcon Holdings and Bazan Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Afcon Holdings position performs unexpectedly, Bazan 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 Bazan Oil will offset losses from the drop in Bazan Oil's long position.
The idea behind Afcon Holdings and Bazan Oil Refineries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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