Correlation Between BP Plc and Cogent Communications

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

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

Diversification Opportunities for BP Plc and Cogent Communications

-0.47

Correlation Coefficient

BP Plc  Cogent Communications

Very good diversification

The 3 months correlation between BSU and Cogent is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications 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 Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of BP Plc i.e., BP Plc and Cogent Communications go up and down completely randomly.

Pair Corralation between BP Plc and Cogent Communications

Assuming the 90 days trading horizon BP plc is expected to generate 0.79 times more return on investment than Cogent Communications. However, BP plc is 1.27 times less risky than Cogent Communications. It trades about 0.1 of its potential returns per unit of risk. Cogent Communications Holdings is currently generating about -0.06 per unit of risk. If you would invest  2,870  in BP plc on October 20, 2024 and sell it today you would earn a total of  230.00  from holding BP plc or generate 8.01% return on investment over 90 days.

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

BP plc  vs.  Cogent Communications Holdings

BP plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BP Plc may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BP Plc and Cogent Communications

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

The idea behind BP plc and Cogent Communications Holdings 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.