Correlation Between BP Plc and Equinor ASA

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

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

Diversification Opportunities for BP Plc and Equinor ASA

0.54

Correlation Coefficient

BP Plc  Equinor ASA

Very weak diversification

The 3 months correlation between BPAQF and Equinor is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA has no effect on the direction of BP Plc i.e., BP Plc and Equinor ASA go up and down completely randomly.

Pair Corralation between BP Plc and Equinor ASA

Assuming the 90 days horizon BP plc is expected to generate 0.78 times more return on investment than Equinor ASA. However, BP plc is 1.28 times less risky than Equinor ASA. It trades about -0.02 of its potential returns per unit of risk. Equinor ASA is currently generating about -0.03 per unit of risk. If you would invest  524.00  in BP plc on September 15, 2024 and sell it today you would lose (23.00) from holding BP plc or give up 4.39% of portfolio value over 90 days.

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

BP plc  vs.  Equinor ASA

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. Despite nearly stable basic indicators, BP Plc is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Equinor ASA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BP Plc and Equinor ASA

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

The idea behind BP plc and Equinor ASA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..