Correlation Between Noble Plc and BP PLC

Can any of the company-specific risk be diversified away by investing in both Noble 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 Noble 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 Noble plc and BP PLC ADR, you can compare the effects of market volatilities on Noble 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 Noble Plc with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Noble Plc and BP PLC.

Diversification Opportunities for Noble Plc and BP PLC

-0.45

Correlation Coefficient

Noble Plc  BP PLC

Very good diversification

The 3 months correlation between Noble and BP PLC is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Noble plc 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 Noble 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 Noble 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 ADR has no effect on the direction of Noble Plc i.e., Noble Plc and BP PLC go up and down completely randomly.

Pair Corralation between Noble Plc and BP PLC

Allowing for the 90-day total investment horizon Noble plc is expected to under-perform the BP PLC. In addition to that, Noble Plc is 1.74 times more volatile than BP PLC ADR. It trades about -0.09 of its total potential returns per unit of risk. BP PLC ADR is currently generating about 0.21 per unit of volatility. If you would invest  2,856  in BP PLC ADR on December 27, 2024 and sell it today you would earn a total of  586.00  from holding BP PLC ADR or generate 20.52% return on investment over 90 days.

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

Noble plc  vs.  BP PLC ADR

Noble plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Noble plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting 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 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 Noble Plc and BP PLC

The main advantage of trading using opposite Noble Plc and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Noble 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 Noble plc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.