Correlation Between BP Plc and Beowulf Mining

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

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

Diversification Opportunities for BP Plc and Beowulf Mining

0.82

Correlation Coefficient

BP Plc  Beowulf Mining

Very poor diversification

The 3 months correlation between BP-A and Beowulf is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Beowulf Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beowulf Mining 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 Beowulf Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beowulf Mining has no effect on the direction of BP Plc i.e., BP Plc and Beowulf Mining go up and down completely randomly.

Pair Corralation between BP Plc and Beowulf Mining

Assuming the 90 days trading horizon BP plc is expected to generate 0.4 times more return on investment than Beowulf Mining. However, BP plc is 2.51 times less risky than Beowulf Mining. It trades about -0.17 of its potential returns per unit of risk. Beowulf Mining is currently generating about -0.25 per unit of risk. If you would invest  15,500  in BP plc on September 15, 2024 and sell it today you would lose (2,200) from holding BP plc or give up 14.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.48%
Values	Daily Returns

BP plc  vs.  Beowulf Mining

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 unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Beowulf Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beowulf Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with BP Plc and Beowulf Mining

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

The idea behind BP plc and Beowulf Mining 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.