Correlation Between VULCAN MATERIALS and BP Plc

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

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

Diversification Opportunities for VULCAN MATERIALS and BP Plc

-0.58

Correlation Coefficient

VULCAN MATERIALS  BP Plc

Excellent diversification

The 3 months correlation between VULCAN and BSU is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding VULCAN MATERIALS and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and VULCAN MATERIALS 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 VULCAN MATERIALS 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 VULCAN MATERIALS i.e., VULCAN MATERIALS and BP Plc go up and down completely randomly.

Pair Corralation between VULCAN MATERIALS and BP Plc

Assuming the 90 days trading horizon VULCAN MATERIALS is expected to generate 1.2 times more return on investment than BP Plc. However, VULCAN MATERIALS is 1.2 times more volatile than BP plc. It trades about 0.16 of its potential returns per unit of risk. BP plc is currently generating about 0.0 per unit of risk. If you would invest  21,760  in VULCAN MATERIALS on September 17, 2024 and sell it today you would earn a total of  4,440  from holding VULCAN MATERIALS or generate 20.4% return on investment over 90 days.

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

VULCAN MATERIALS  vs.  BP plc

VULCAN MATERIALS

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VULCAN MATERIALS are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, VULCAN MATERIALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of comparatively stable basic indicators, BP Plc is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with VULCAN MATERIALS and BP Plc

The main advantage of trading using opposite VULCAN MATERIALS and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VULCAN MATERIALS 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 VULCAN MATERIALS 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.