Correlation Between BP Prudhoe and NGL Energy

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

Diversification Opportunities for BP Prudhoe and NGL Energy

-0.45

Correlation Coefficient

BP Prudhoe  NGL Energy

Very good diversification

The 3 months correlation between BPT and NGL is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding BP Prudhoe Bay and NGL Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGL Energy Partners 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 NGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGL Energy Partners has no effect on the direction of BP Prudhoe i.e., BP Prudhoe and NGL Energy go up and down completely randomly.

Pair Corralation between BP Prudhoe and NGL Energy

Considering the 90-day investment horizon BP Prudhoe is expected to generate 1.32 times less return on investment than NGL Energy. In addition to that, BP Prudhoe is 10.76 times more volatile than NGL Energy Partners. It trades about 0.01 of its total potential returns per unit of risk. NGL Energy Partners is currently generating about 0.1 per unit of volatility. If you would invest  2,305  in NGL Energy Partners on December 26, 2024 and sell it today you would earn a total of  95.00  from holding NGL Energy Partners or generate 4.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

BP Prudhoe Bay  vs.  NGL Energy Partners

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.

NGL Energy Partners

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, NGL Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BP Prudhoe and NGL Energy

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

The idea behind BP Prudhoe Bay and NGL Energy Partners 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.