Correlation Between BP Plc and Waste Management

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

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

Diversification Opportunities for BP Plc and Waste Management

-0.88

Correlation Coefficient

BP Plc  Waste Management

Pay attention - limited upside

The 3 months correlation between BP-A and Waste is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management and BP Plc 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 BP plc are associated (or correlated) with Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of BP Plc i.e., BP Plc and Waste Management go up and down completely randomly.

Pair Corralation between BP Plc and Waste Management

Assuming the 90 days trading horizon BP plc is expected to under-perform the Waste Management. In addition to that, BP Plc is 1.04 times more volatile than Waste Management. It trades about -0.12 of its total potential returns per unit of risk. Waste Management is currently generating about 0.07 per unit of volatility. If you would invest  20,602  in Waste Management on September 12, 2024 and sell it today you would earn a total of  1,045  from holding Waste Management or generate 5.07% return on investment over 90 days.

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

BP plc  vs.  Waste Management

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Waste Management

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Waste Management is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BP Plc and Waste Management

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

The idea behind BP plc and Waste Management 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.