Correlation Between Teekay and BP Prudhoe

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

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

Diversification Opportunities for Teekay and BP Prudhoe

-0.49

Correlation Coefficient

Teekay  BP Prudhoe

Very good diversification

The 3 months correlation between Teekay and BPT is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Teekay and BP Prudhoe Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Prudhoe Bay and Teekay 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 Teekay are associated (or correlated) with BP Prudhoe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Prudhoe Bay has no effect on the direction of Teekay i.e., Teekay and BP Prudhoe go up and down completely randomly.

Pair Corralation between Teekay and BP Prudhoe

Allowing for the 90-day total investment horizon Teekay is expected to generate 1.9 times less return on investment than BP Prudhoe. But when comparing it to its historical volatility, Teekay is 3.27 times less risky than BP Prudhoe. It trades about 0.04 of its potential returns per unit of risk. BP Prudhoe Bay is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  65.00  in BP Prudhoe Bay on December 18, 2024 and sell it today you would lose (4.00) from holding BP Prudhoe Bay or give up 6.15% of portfolio value over 90 days.

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

Teekay  vs.  BP Prudhoe Bay

Teekay

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Teekay are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Teekay is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

BP Prudhoe Bay

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BP Prudhoe Bay are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, BP Prudhoe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Teekay and BP Prudhoe

The main advantage of trading using opposite Teekay and BP Prudhoe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teekay position performs unexpectedly, BP Prudhoe 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 Prudhoe will offset losses from the drop in BP Prudhoe's long position.

The idea behind Teekay and BP Prudhoe Bay 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.