Correlation Between John Wood and BP Plc

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

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

Diversification Opportunities for John Wood and BP Plc

0.83

Correlation Coefficient

John Wood  BP Plc

Very poor diversification

The 3 months correlation between John and BP-A is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding John Wood Group and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and John Wood 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 John Wood Group 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 John Wood i.e., John Wood and BP Plc go up and down completely randomly.

Pair Corralation between John Wood and BP Plc

Assuming the 90 days trading horizon John Wood Group is expected to under-perform the BP Plc. In addition to that, John Wood is 6.71 times more volatile than BP plc. It trades about -0.11 of its total potential returns per unit of risk. BP plc is currently generating about -0.1 per unit of volatility. If you would invest  15,200  in BP plc on September 2, 2024 and sell it today you would lose (1,250) from holding BP plc or give up 8.22% of portfolio value over 90 days.

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

John Wood Group  vs.  BP plc

John Wood Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days John Wood Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with John Wood and BP Plc

The main advantage of trading using opposite John Wood and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if John Wood 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 John Wood Group 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.