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

0.44

Correlation Coefficient

BP Prudhoe  Chevron Corp

Very weak diversification

The 3 months correlation between BPT and Chevron is 0.44. 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 Bay is expected to under-perform the Chevron Corp. In addition to that, BP Prudhoe is 6.37 times more volatile than Chevron Corp. It trades about -0.09 of its total potential returns per unit of risk. Chevron Corp is currently generating about -0.01 per unit of volatility. If you would invest  16,015  in Chevron Corp on November 28, 2024 and sell it today you would lose (226.00) from holding Chevron Corp or give up 1.41% of portfolio value over 90 days.

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

BP Prudhoe Bay  vs.  Chevron Corp

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 unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Chevron Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.