Correlation Between BP PLC and BP Plc

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

By analyzing existing cross correlation between BP PLC DZ1 and BP plc, you can compare the effects of market volatilities on BP PLC 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 BP PLC with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and BP Plc.

Diversification Opportunities for BP PLC and BP Plc

0.76

Correlation Coefficient

BP PLC  BP Plc

Poor diversification

The 3 months correlation between BPE and BSU is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC DZ1 and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 DZ1 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 BP PLC i.e., BP PLC and BP Plc go up and down completely randomly.

Pair Corralation between BP PLC and BP Plc

Assuming the 90 days horizon BP PLC DZ1 is expected to under-perform the BP Plc. In addition to that, BP PLC is 1.65 times more volatile than BP plc. It trades about -0.08 of its total potential returns per unit of risk. BP plc is currently generating about -0.05 per unit of volatility. If you would invest  2,870  in BP plc on September 4, 2024 and sell it today you would lose (110.00) from holding BP plc or give up 3.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

BP PLC DZ1  vs.  BP plc

BP PLC DZ1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP PLC DZ1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BP PLC and BP Plc

The main advantage of trading using opposite BP PLC and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC 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 BP PLC DZ1 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.

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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.