Correlation Between Imperial Petroleum and BP PLC

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

By analyzing existing cross correlation between Imperial Petroleum Preferred and BP PLC ADR, you can compare the effects of market volatilities on Imperial Petroleum 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 Imperial Petroleum with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Petroleum and BP PLC.

Diversification Opportunities for Imperial Petroleum and BP PLC

-0.03

Correlation Coefficient

Imperial Petroleum  BP PLC

Good diversification

The 3 months correlation between Imperial and BP PLC is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Petroleum Preferred and BP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC ADR and Imperial Petroleum 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 Imperial Petroleum Preferred 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 ADR has no effect on the direction of Imperial Petroleum i.e., Imperial Petroleum and BP PLC go up and down completely randomly.

Pair Corralation between Imperial Petroleum and BP PLC

Assuming the 90 days horizon Imperial Petroleum is expected to generate 8.92 times less return on investment than BP PLC. But when comparing it to its historical volatility, Imperial Petroleum Preferred is 2.48 times less risky than BP PLC. It trades about 0.06 of its potential returns per unit of risk. BP PLC ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,869  in BP PLC ADR on December 29, 2024 and sell it today you would earn a total of  572.00  from holding BP PLC ADR or generate 19.94% return on investment over 90 days.

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

Imperial Petroleum Preferred  vs.  BP PLC ADR

Imperial Petroleum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Petroleum Preferred are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Imperial Petroleum is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

BP PLC ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BP PLC ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, BP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Petroleum and BP PLC

The main advantage of trading using opposite Imperial Petroleum and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Petroleum 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 Imperial Petroleum Preferred and BP PLC ADR 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 Stocks Directory module to find actively traded stocks across global markets.