Correlation Between Gear4music (Holdings) and BP Plc

Can any of the company-specific risk be diversified away by investing in both Gear4music (Holdings) 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 Gear4music (Holdings) and BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gear4music Plc and BP plc, you can compare the effects of market volatilities on Gear4music (Holdings) 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 Gear4music (Holdings) with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gear4music (Holdings) and BP Plc.

Diversification Opportunities for Gear4music (Holdings) and BP Plc

-0.42

Correlation Coefficient

Gear4music (Holdings)  BP Plc

Very good diversification

The 3 months correlation between Gear4music and BP-A is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Gear4music Plc and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Gear4music (Holdings) 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 Gear4music 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 Gear4music (Holdings) i.e., Gear4music (Holdings) and BP Plc go up and down completely randomly.

Pair Corralation between Gear4music (Holdings) and BP Plc

Assuming the 90 days trading horizon Gear4music Plc is expected to under-perform the BP Plc. In addition to that, Gear4music (Holdings) is 1.87 times more volatile than BP plc. It trades about -0.25 of its total potential returns per unit of risk. BP plc is currently generating about 0.03 per unit of volatility. If you would invest  13,846  in BP plc on December 23, 2024 and sell it today you would earn a total of  154.00  from holding BP plc or generate 1.11% return on investment over 90 days.

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

Gear4music Plc  vs.  BP plc

Gear4music (Holdings)

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear4music 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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

BP plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BP Plc is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Gear4music (Holdings) and BP Plc

The main advantage of trading using opposite Gear4music (Holdings) and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gear4music (Holdings) 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 Gear4music 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.