Correlation Between Aker BP and BW Energy

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

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

Diversification Opportunities for Aker BP and BW Energy

0.85

Correlation Coefficient

Aker BP  BW Energy

Very poor diversification

The 3 months correlation between Aker and BWE is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Aker BP ASA and BW Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Energy and Aker BP 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 Aker BP ASA are associated (or correlated) with BW Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Energy has no effect on the direction of Aker BP i.e., Aker BP and BW Energy go up and down completely randomly.

Pair Corralation between Aker BP and BW Energy

Assuming the 90 days trading horizon Aker BP ASA is expected to generate 1.85 times more return on investment than BW Energy. However, Aker BP is 1.85 times more volatile than BW Energy. It trades about 0.1 of its potential returns per unit of risk. BW Energy is currently generating about 0.0 per unit of risk. If you would invest  4,386  in Aker BP ASA on November 20, 2024 and sell it today you would earn a total of  19,324  from holding Aker BP ASA or generate 440.58% return on investment over 90 days.

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

Aker BP ASA  vs.  BW Energy

Aker BP ASA

Risk-Adjusted Performance

Modest

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

BW Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, BW Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aker BP and BW Energy

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

The idea behind Aker BP ASA and BW Energy 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.