Correlation Between BROOKFBH 462 and BP Plc

Can any of the company-specific risk be diversified away by investing in both BROOKFBH 462 and BP Plc 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 BROOKFBH 462 and BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BROOKFBH 462 PRSNU and BP plc, you can compare the effects of market volatilities on BROOKFBH 462 and BP Plc 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 BROOKFBH 462 with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of BROOKFBH 462 and BP Plc.

Diversification Opportunities for BROOKFBH 462 and BP Plc

-0.42

Correlation Coefficient

BROOKFBH 462  BP Plc

Very good diversification

The 3 months correlation between BROOKFBH and BSU is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding BROOKFBH 462 PRSNU and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and BROOKFBH 462 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 BROOKFBH 462 PRSNU are associated (or correlated) with BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of BROOKFBH 462 i.e., BROOKFBH 462 and BP Plc go up and down completely randomly.

Pair Corralation between BROOKFBH 462 and BP Plc

Assuming the 90 days horizon BROOKFBH 462 PRSNU is expected to generate 1.54 times more return on investment than BP Plc. However, BROOKFBH 462 is 1.54 times more volatile than BP plc. It trades about 0.04 of its potential returns per unit of risk. BP plc is currently generating about 0.01 per unit of risk. If you would invest  1,378  in BROOKFBH 462 PRSNU on September 12, 2024 and sell it today you would earn a total of  60.00  from holding BROOKFBH 462 PRSNU or generate 4.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	76.56%
Values	Daily Returns

BROOKFBH 462 PRSNU  vs.  BP plc

BROOKFBH 462 PRSNU

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BROOKFBH 462 PRSNU are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BROOKFBH 462 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BP plc

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with BROOKFBH 462 and BP Plc

The main advantage of trading using opposite BROOKFBH 462 and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BROOKFBH 462 position performs unexpectedly, BP Plc 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 BP Plc will offset losses from the drop in BP Plc's long position.

The idea behind BROOKFBH 462 PRSNU and BP plc 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.