Correlation Between Chevron and BP PLC

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

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

Diversification Opportunities for Chevron and BP PLC

-0.63

Correlation Coefficient

Chevron  BP PLC

Excellent diversification

The 3 months correlation between Chevron and BPE is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and BP PLC DZ1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC DZ1 and Chevron 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 Chevron 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 DZ1 has no effect on the direction of Chevron i.e., Chevron and BP PLC go up and down completely randomly.

Pair Corralation between Chevron and BP PLC

Assuming the 90 days trading horizon Chevron is expected to generate 0.48 times more return on investment than BP PLC. However, Chevron is 2.09 times less risky than BP PLC. It trades about 0.17 of its potential returns per unit of risk. BP PLC DZ1 is currently generating about -0.08 per unit of risk. If you would invest  13,268  in Chevron on September 2, 2024 and sell it today you would earn a total of  2,032  from holding Chevron or generate 15.32% return on investment over 90 days.

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

Chevron  vs.  BP PLC DZ1

Chevron

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Chevron unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Chevron and BP PLC

The main advantage of trading using opposite Chevron and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron 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 Chevron and BP PLC DZ1 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.