Correlation Between Packaging and BP Plc

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

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

Diversification Opportunities for Packaging and BP Plc

-0.5

Correlation Coefficient

Packaging  BP Plc

Very good diversification

The 3 months correlation between Packaging and BSU is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Packaging of and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Packaging 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 Packaging of 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 Packaging i.e., Packaging and BP Plc go up and down completely randomly.

Pair Corralation between Packaging and BP Plc

Assuming the 90 days horizon Packaging of is expected to generate 0.65 times more return on investment than BP Plc. However, Packaging of is 1.54 times less risky than BP Plc. It trades about 0.25 of its potential returns per unit of risk. BP plc is currently generating about 0.01 per unit of risk. If you would invest  18,606  in Packaging of on September 12, 2024 and sell it today you would earn a total of  3,974  from holding Packaging of or generate 21.36% return on investment over 90 days.

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

Packaging of  vs.  BP plc

Packaging

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Packaging of are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Packaging reported solid returns over the last few months and may actually be approaching a breakup point.

BP plc

Risk-Adjusted Performance

0 of 100

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 Packaging and BP Plc

The main advantage of trading using opposite Packaging and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Packaging 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 Packaging of 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.