Correlation Between BP Plc and Molson Coors

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

By analyzing existing cross correlation between BP plc and Molson Coors Beverage, you can compare the effects of market volatilities on BP Plc and Molson Coors 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 Molson Coors. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and Molson Coors.

Diversification Opportunities for BP Plc and Molson Coors

-0.29

Correlation Coefficient

BP Plc  Molson Coors

Very good diversification

The 3 months correlation between BSU and Molson is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Molson Coors Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Molson Coors Beverage 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 are associated (or correlated) with Molson Coors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Molson Coors Beverage has no effect on the direction of BP Plc i.e., BP Plc and Molson Coors go up and down completely randomly.

Pair Corralation between BP Plc and Molson Coors

Assuming the 90 days horizon BP Plc is expected to generate 1.88 times less return on investment than Molson Coors. But when comparing it to its historical volatility, BP plc is 1.06 times less risky than Molson Coors. It trades about 0.05 of its potential returns per unit of risk. Molson Coors Beverage is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,914  in Molson Coors Beverage on October 10, 2024 and sell it today you would earn a total of  392.00  from holding Molson Coors Beverage or generate 7.98% return on investment over 90 days.

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

BP plc  vs.  Molson Coors Beverage

BP plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BP Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Molson Coors Beverage

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Molson Coors Beverage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Molson Coors may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BP Plc and Molson Coors

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

The idea behind BP plc and Molson Coors Beverage 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.