Correlation Between BP PLC and Suncor Energy

Can any of the company-specific risk be diversified away by investing in both BP PLC and Suncor 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 BP PLC and Suncor Energy 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 Suncor Energy, you can compare the effects of market volatilities on BP PLC and Suncor 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 BP PLC with a short position of Suncor Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Suncor Energy.

Diversification Opportunities for BP PLC and Suncor Energy

-0.1

Correlation Coefficient

BP PLC  Suncor Energy

Good diversification

The 3 months correlation between BP PLC and Suncor is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Suncor Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suncor Energy 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 Suncor Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suncor Energy has no effect on the direction of BP PLC i.e., BP PLC and Suncor Energy go up and down completely randomly.

Pair Corralation between BP PLC and Suncor Energy

Allowing for the 90-day total investment horizon BP PLC ADR is expected to under-perform the Suncor Energy. But the stock apears to be less risky and, when comparing its historical volatility, BP PLC ADR is 1.05 times less risky than Suncor Energy. The stock trades about -0.09 of its potential returns per unit of risk. The Suncor Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,932  in Suncor Energy on September 1, 2024 and sell it today you would earn a total of  16.00  from holding Suncor Energy or generate 0.41% 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.  Suncor Energy

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 unsteady 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.

Suncor Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suncor Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Suncor Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BP PLC and Suncor Energy

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

The idea behind BP PLC ADR and Suncor 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.