Correlation Between BP Prudhoe and Chevron Corp

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

Diversification Opportunities for BP Prudhoe and Chevron Corp

-0.33

Correlation Coefficient

BP Prudhoe  Chevron Corp

Very good diversification

The 3 months correlation between BPT and Chevron is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding BP Prudhoe Bay and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of BP Prudhoe i.e., BP Prudhoe and Chevron Corp go up and down completely randomly.

Pair Corralation between BP Prudhoe and Chevron Corp

Considering the 90-day investment horizon BP Prudhoe is expected to generate 1.49 times less return on investment than Chevron Corp. In addition to that, BP Prudhoe is 5.47 times more volatile than Chevron Corp. It trades about 0.02 of its total potential returns per unit of risk. Chevron Corp is currently generating about 0.2 per unit of volatility. If you would invest  14,242  in Chevron Corp on December 27, 2024 and sell it today you would earn a total of  2,423  from holding Chevron Corp or generate 17.01% 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.  Chevron Corp

BP Prudhoe Bay

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BP Prudhoe Bay are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, BP Prudhoe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Chevron Corp

Risk-Adjusted Performance

Solid

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

Pair Trading with BP Prudhoe and Chevron Corp

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

The idea behind BP Prudhoe Bay and Chevron Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.