Correlation Between Power Metal and BP Plc

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

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

Diversification Opportunities for Power Metal and BP Plc

-0.24

Correlation Coefficient

Power Metal  BP Plc

Very good diversification

The 3 months correlation between Power and BP-B is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Power Metal Resources and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Power Metal 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 Power Metal Resources 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 Power Metal i.e., Power Metal and BP Plc go up and down completely randomly.

Pair Corralation between Power Metal and BP Plc

Assuming the 90 days trading horizon Power Metal Resources is expected to generate 4.89 times more return on investment than BP Plc. However, Power Metal is 4.89 times more volatile than BP plc. It trades about 0.04 of its potential returns per unit of risk. BP plc is currently generating about 0.13 per unit of risk. If you would invest  1,375  in Power Metal Resources on December 29, 2024 and sell it today you would earn a total of  63.00  from holding Power Metal Resources or generate 4.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Power Metal Resources  vs.  BP plc

Power Metal Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Metal Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Power Metal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BP plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 9 (%) 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 Power Metal and BP Plc

The main advantage of trading using opposite Power Metal and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Metal 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 Power Metal Resources 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.