Correlation Between Neste Oyj and BP Prudhoe

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

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

Diversification Opportunities for Neste Oyj and BP Prudhoe

0.57

Correlation Coefficient

Neste Oyj  BP Prudhoe

Very weak diversification

The 3 months correlation between Neste and BMI is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Neste Oyj and BP Prudhoe Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Prudhoe Bay and Neste Oyj 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 Neste Oyj are associated (or correlated) with BP Prudhoe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Prudhoe Bay has no effect on the direction of Neste Oyj i.e., Neste Oyj and BP Prudhoe go up and down completely randomly.

Pair Corralation between Neste Oyj and BP Prudhoe

Assuming the 90 days horizon Neste Oyj is expected to under-perform the BP Prudhoe. But the stock apears to be less risky and, when comparing its historical volatility, Neste Oyj is 3.24 times less risky than BP Prudhoe. The stock trades about -0.25 of its potential returns per unit of risk. The BP Prudhoe Bay is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  96.00  in BP Prudhoe Bay on September 23, 2024 and sell it today you would lose (35.00) from holding BP Prudhoe Bay or give up 36.46% of portfolio value over 90 days.

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

Neste Oyj  vs.  BP Prudhoe Bay

Neste Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neste Oyj 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.

BP Prudhoe Bay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP Prudhoe Bay 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 Neste Oyj and BP Prudhoe

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

The idea behind Neste Oyj and BP Prudhoe Bay 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.