Correlation Between Unit and BP Plc

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

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

Diversification Opportunities for Unit and BP Plc

0.59

Correlation Coefficient

Unit  BP Plc

Very weak diversification

The 3 months correlation between Unit and BPAQF is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Unit Corp. and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Unit 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 Unit Corporation 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 Unit i.e., Unit and BP Plc go up and down completely randomly.

Pair Corralation between Unit and BP Plc

Given the investment horizon of 90 days Unit Corporation is expected to generate 0.89 times more return on investment than BP Plc. However, Unit Corporation is 1.12 times less risky than BP Plc. It trades about -0.01 of its potential returns per unit of risk. BP plc is currently generating about -0.04 per unit of risk. If you would invest  3,513  in Unit Corporation on September 14, 2024 and sell it today you would lose (139.00) from holding Unit Corporation or give up 3.96% of portfolio value over 90 days.

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

Unit Corp.  vs.  BP plc

Unit

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Unit Corporation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Unit may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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

Pair Trading with Unit and BP Plc

The main advantage of trading using opposite Unit and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unit 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 Unit Corporation 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.