Correlation Between BP PLC and Chevron

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

By analyzing existing cross correlation between BP PLC DZ1 and Chevron, you can compare the effects of market volatilities on BP PLC and Chevron 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 Chevron. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Chevron.

Diversification Opportunities for BP PLC and Chevron

-0.67

Correlation Coefficient

BP PLC  Chevron

Excellent diversification

The 3 months correlation between BPE and Chevron is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC DZ1 and Chevron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron 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 DZ1 are associated (or correlated) with Chevron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron has no effect on the direction of BP PLC i.e., BP PLC and Chevron go up and down completely randomly.

Pair Corralation between BP PLC and Chevron

Assuming the 90 days horizon BP PLC DZ1 is expected to generate 2.39 times more return on investment than Chevron. However, BP PLC is 2.39 times more volatile than Chevron. It trades about 0.18 of its potential returns per unit of risk. Chevron is currently generating about -0.09 per unit of risk. If you would invest  434.00  in BP PLC DZ1 on September 15, 2024 and sell it today you would earn a total of  38.00  from holding BP PLC DZ1 or generate 8.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

BP PLC DZ1  vs.  Chevron

BP PLC DZ1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP PLC DZ1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BP PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Chevron

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Chevron unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BP PLC and Chevron

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

The idea behind BP PLC DZ1 and Chevron 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.