Correlation Between BP Prudhoe and Cross Timbers

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

By analyzing existing cross correlation between BP Prudhoe Bay and Cross Timbers Royalty, you can compare the effects of market volatilities on BP Prudhoe and Cross Timbers 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 Prudhoe with a short position of Cross Timbers. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Prudhoe and Cross Timbers.

Diversification Opportunities for BP Prudhoe and Cross Timbers

-0.26

Correlation Coefficient

BP Prudhoe  Cross Timbers

Very good diversification

The 3 months correlation between BPT and Cross is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding BP Prudhoe Bay and Cross Timbers Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cross Timbers Royalty and BP Prudhoe 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 Prudhoe Bay are associated (or correlated) with Cross Timbers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cross Timbers Royalty has no effect on the direction of BP Prudhoe i.e., BP Prudhoe and Cross Timbers go up and down completely randomly.

Pair Corralation between BP Prudhoe and Cross Timbers

Considering the 90-day investment horizon BP Prudhoe is expected to generate 6.29 times less return on investment than Cross Timbers. In addition to that, BP Prudhoe is 3.71 times more volatile than Cross Timbers Royalty. It trades about 0.01 of its total potential returns per unit of risk. Cross Timbers Royalty is currently generating about 0.17 per unit of volatility. If you would invest  971.00  in Cross Timbers Royalty on December 26, 2024 and sell it today you would earn a total of  204.00  from holding Cross Timbers Royalty or generate 21.01% return on investment over 90 days.

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

BP Prudhoe Bay  vs.  Cross Timbers Royalty

BP Prudhoe Bay

Risk-Adjusted Performance

Very Weak

Over the last 90 days BP Prudhoe Bay has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BP Prudhoe is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Cross Timbers Royalty

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cross Timbers Royalty are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cross Timbers unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BP Prudhoe and Cross Timbers

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

The idea behind BP Prudhoe Bay and Cross Timbers Royalty 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.