Correlation Between BP PLC and Highlight Communications

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

Diversification Opportunities for BP PLC and Highlight Communications

-0.04

Correlation Coefficient

BP PLC  Highlight Communications

Good diversification

The 3 months correlation between BPE and Highlight is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC DZ1 and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications 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 Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of BP PLC i.e., BP PLC and Highlight Communications go up and down completely randomly.

Pair Corralation between BP PLC and Highlight Communications

Assuming the 90 days horizon BP PLC is expected to generate 3.53 times less return on investment than Highlight Communications. But when comparing it to its historical volatility, BP PLC DZ1 is 1.22 times less risky than Highlight Communications. It trades about 0.0 of its potential returns per unit of risk. Highlight Communications AG is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  115.00  in Highlight Communications AG on September 17, 2024 and sell it today you would lose (1.00) from holding Highlight Communications AG or give up 0.87% of portfolio value over 90 days.

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

BP PLC DZ1  vs.  Highlight Communications AG

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.

Highlight Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BP PLC and Highlight Communications

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

The idea behind BP PLC DZ1 and Highlight Communications AG 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.