Correlation Between BP PLC and Exxon Mobil

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

Diversification Opportunities for BP PLC and Exxon Mobil

-0.38

Correlation Coefficient

BP PLC  Exxon Mobil

Very good diversification

The 3 months correlation between BPE and Exxon is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC DZ1 and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon Mobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of BP PLC i.e., BP PLC and Exxon Mobil go up and down completely randomly.

Pair Corralation between BP PLC and Exxon Mobil

Assuming the 90 days horizon BP PLC DZ1 is expected to generate 1.74 times more return on investment than Exxon Mobil. However, BP PLC is 1.74 times more volatile than Exxon Mobil. It trades about -0.02 of its potential returns per unit of risk. Exxon Mobil is currently generating about -0.27 per unit of risk. If you would invest  460.00  in BP PLC DZ1 on September 18, 2024 and sell it today you would lose (8.00) from holding BP PLC DZ1 or give up 1.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

BP PLC DZ1  vs.  Exxon Mobil

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Exxon Mobil

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Exxon Mobil is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BP PLC and Exxon Mobil

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

The idea behind BP PLC DZ1 and Exxon Mobil 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.