Correlation Between MOL PLC and BP Plc

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

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

Diversification Opportunities for MOL PLC and BP Plc

0.85

Correlation Coefficient

MOL PLC  BP Plc

Very poor diversification

The 3 months correlation between MOL and BPAQF is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding MOL PLC ADR and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and MOL 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 MOL PLC ADR 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 MOL PLC i.e., MOL PLC and BP Plc go up and down completely randomly.

Pair Corralation between MOL PLC and BP Plc

Assuming the 90 days horizon MOL PLC ADR is expected to under-perform the BP Plc. But the pink sheet apears to be less risky and, when comparing its historical volatility, MOL PLC ADR is 1.58 times less risky than BP Plc. The pink sheet trades about -0.09 of its potential returns per unit of risk. The BP plc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  526.00  in BP plc on September 13, 2024 and sell it today you would lose (29.00) from holding BP plc or give up 5.51% of portfolio value over 90 days.

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

MOL PLC ADR  vs.  BP plc

MOL PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MOL PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. Despite nearly stable basic indicators, BP Plc is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MOL PLC and BP Plc

The main advantage of trading using opposite MOL PLC and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MOL PLC 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 MOL PLC ADR 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.

Check out your portfolio center.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.