Correlation Between BP Plc and Origin Energy

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

By analyzing existing cross correlation between BP plc and Origin Energy Ltd, you can compare the effects of market volatilities on BP Plc and Origin 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 Origin Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and Origin Energy.

Diversification Opportunities for BP Plc and Origin Energy

-0.4

Correlation Coefficient

BP Plc  Origin Energy

Very good diversification

The 3 months correlation between BPAQF and Origin is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Origin Energy Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Origin 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 are associated (or correlated) with Origin Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Origin Energy has no effect on the direction of BP Plc i.e., BP Plc and Origin Energy go up and down completely randomly.

Pair Corralation between BP Plc and Origin Energy

Assuming the 90 days horizon BP plc is expected to generate 0.91 times more return on investment than Origin Energy. However, BP plc is 1.1 times less risky than Origin Energy. It trades about 0.16 of its potential returns per unit of risk. Origin Energy Ltd is currently generating about -0.02 per unit of risk. If you would invest  477.00  in BP plc on December 28, 2024 and sell it today you would earn a total of  93.00  from holding BP plc or generate 19.5% return on investment over 90 days.

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

BP plc  vs.  Origin Energy Ltd

BP plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, BP Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Origin Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Origin Energy Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Origin Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BP Plc and Origin Energy

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

The idea behind BP plc and Origin Energy Ltd 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.