Correlation Between TotalEnergies and BP PLC

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

By analyzing existing cross correlation between TotalEnergies SE and BP PLC DZ1, you can compare the effects of market volatilities on TotalEnergies 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 TotalEnergies with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of TotalEnergies and BP PLC.

Diversification Opportunities for TotalEnergies and BP PLC

0.61

Correlation Coefficient

TotalEnergies  BP PLC

Poor diversification

The 3 months correlation between TotalEnergies and BPE is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies SE and BP PLC DZ1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC DZ1 and TotalEnergies 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 TotalEnergies SE 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 DZ1 has no effect on the direction of TotalEnergies i.e., TotalEnergies and BP PLC go up and down completely randomly.

Pair Corralation between TotalEnergies and BP PLC

Assuming the 90 days trading horizon TotalEnergies SE is expected to generate 0.61 times more return on investment than BP PLC. However, TotalEnergies SE is 1.64 times less risky than BP PLC. It trades about 0.16 of its potential returns per unit of risk. BP PLC DZ1 is currently generating about 0.09 per unit of risk. If you would invest  5,208  in TotalEnergies SE on December 30, 2024 and sell it today you would earn a total of  792.00  from holding TotalEnergies SE or generate 15.21% return on investment over 90 days.

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

TotalEnergies SE  vs.  BP PLC DZ1

TotalEnergies SE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, TotalEnergies reported solid returns over the last few months and may actually be approaching a breakup point.

BP PLC DZ1

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BP PLC DZ1 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TotalEnergies and BP PLC

The main advantage of trading using opposite TotalEnergies and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TotalEnergies 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 TotalEnergies SE and BP PLC DZ1 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.