Correlation Between BP PLC and TotalEnergies

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

Diversification Opportunities for BP PLC and TotalEnergies

0.91

Correlation Coefficient

BP PLC  TotalEnergies

Almost no diversification

The 3 months correlation between BP PLC and TotalEnergies is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and TotalEnergies SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE ADR 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE ADR has no effect on the direction of BP PLC i.e., BP PLC and TotalEnergies go up and down completely randomly.

Pair Corralation between BP PLC and TotalEnergies

Allowing for the 90-day total investment horizon BP PLC is expected to generate 1.13 times less return on investment than TotalEnergies. In addition to that, BP PLC is 1.46 times more volatile than TotalEnergies SE ADR. It trades about 0.18 of its total potential returns per unit of risk. TotalEnergies SE ADR is currently generating about 0.3 per unit of volatility. If you would invest  5,294  in TotalEnergies SE ADR on December 30, 2024 and sell it today you would earn a total of  1,121  from holding TotalEnergies SE ADR or generate 21.17% return on investment over 90 days.

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

BP PLC ADR  vs.  TotalEnergies SE ADR

BP PLC ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BP PLC ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, BP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

TotalEnergies SE ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE ADR are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, TotalEnergies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BP PLC and TotalEnergies

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

The idea behind BP PLC ADR and TotalEnergies SE ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..