Correlation Between BP PLC and Brighthouse Financial

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

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

Diversification Opportunities for BP PLC and Brighthouse Financial

-0.34

Correlation Coefficient

BP PLC  Brighthouse Financial

Very good diversification

The 3 months correlation between BP PLC and Brighthouse is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial and BP PLC 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 BP PLC ADR are associated (or correlated) with Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of BP PLC i.e., BP PLC and Brighthouse Financial go up and down completely randomly.

Pair Corralation between BP PLC and Brighthouse Financial

Allowing for the 90-day total investment horizon BP PLC ADR is expected to under-perform the Brighthouse Financial. In addition to that, BP PLC is 2.41 times more volatile than Brighthouse Financial. It trades about -0.1 of its total potential returns per unit of risk. Brighthouse Financial is currently generating about 0.06 per unit of volatility. If you would invest  2,400  in Brighthouse Financial on August 31, 2024 and sell it today you would earn a total of  57.00  from holding Brighthouse Financial or generate 2.38% return on investment over 90 days.

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

BP PLC ADR  vs.  Brighthouse Financial

BP PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest sluggish performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Brighthouse Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Brighthouse Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Brighthouse Financial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with BP PLC and Brighthouse Financial

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

The idea behind BP PLC ADR and Brighthouse Financial 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.