Correlation Between NYSE Composite and Aker BP

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

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

Diversification Opportunities for NYSE Composite and Aker BP

-0.13

Correlation Coefficient

NYSE Composite  Aker BP

Good diversification

The 3 months correlation between NYSE and Aker is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Aker BP ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aker BP ASA and NYSE Composite 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 NYSE Composite are associated (or correlated) with Aker BP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aker BP ASA has no effect on the direction of NYSE Composite i.e., NYSE Composite and Aker BP go up and down completely randomly.

Pair Corralation between NYSE Composite and Aker BP

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.68 times less return on investment than Aker BP. But when comparing it to its historical volatility, NYSE Composite is 10.51 times less risky than Aker BP. It trades about 0.07 of its potential returns per unit of risk. Aker BP ASA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,063  in Aker BP ASA on September 18, 2024 and sell it today you would lose (48.00) from holding Aker BP ASA or give up 4.52% of portfolio value over 90 days.

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

NYSE Composite  vs.  Aker BP ASA

Pair Trading with NYSE Composite and Aker BP

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

The idea behind NYSE Composite and Aker BP 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.