Correlation Between CleanTech Lithium and BP Plc

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

By analyzing existing cross correlation between CleanTech Lithium plc and BP plc, you can compare the effects of market volatilities on CleanTech Lithium and BP Plc 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 CleanTech Lithium with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of CleanTech Lithium and BP Plc.

Diversification Opportunities for CleanTech Lithium and BP Plc

0.73

Correlation Coefficient

CleanTech Lithium  BP Plc

Poor diversification

The 3 months correlation between CleanTech and BP-A is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding CleanTech Lithium plc and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and CleanTech Lithium 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 CleanTech Lithium plc are associated (or correlated) with BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of CleanTech Lithium i.e., CleanTech Lithium and BP Plc go up and down completely randomly.

Pair Corralation between CleanTech Lithium and BP Plc

Assuming the 90 days trading horizon CleanTech Lithium plc is expected to under-perform the BP Plc. But the stock apears to be less risky and, when comparing its historical volatility, CleanTech Lithium plc is 1.23 times less risky than BP Plc. The stock trades about -0.26 of its potential returns per unit of risk. The BP plc is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  13,946  in BP plc on October 9, 2024 and sell it today you would lose (496.00) from holding BP plc or give up 3.56% of portfolio value over 90 days.

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

CleanTech Lithium plc  vs.  BP plc

CleanTech Lithium plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CleanTech Lithium plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with CleanTech Lithium and BP Plc

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

The idea behind CleanTech Lithium plc and BP plc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.