Correlation Between Freeport McMoRan and BP Plc
Can any of the company-specific risk be diversified away by investing in both Freeport McMoRan 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 Freeport McMoRan and BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freeport McMoRan and BP plc, you can compare the effects of market volatilities on Freeport McMoRan 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 Freeport McMoRan with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport McMoRan and BP Plc.
Diversification Opportunities for Freeport McMoRan and BP Plc
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Freeport and BP-A is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Freeport McMoRan 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 Freeport McMoRan 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 Freeport McMoRan i.e., Freeport McMoRan and BP Plc go up and down completely randomly.
Pair Corralation between Freeport McMoRan and BP Plc
Assuming the 90 days trading horizon Freeport McMoRan is expected to generate 1.86 times more return on investment than BP Plc. However, Freeport McMoRan is 1.86 times more volatile than BP plc. It trades about 0.17 of its potential returns per unit of risk. BP plc is currently generating about -0.36 per unit of risk. If you would invest 3,883 in Freeport McMoRan on October 21, 2024 and sell it today you would earn a total of 181.00 from holding Freeport McMoRan or generate 4.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Freeport McMoRan vs. BP plc
Performance |
| Timeline |
| Freeport McMoRan |
| BP plc |
Freeport McMoRan and BP Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Freeport McMoRan and BP Plc
The main advantage of trading using opposite Freeport McMoRan and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freeport McMoRan 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.| Freeport McMoRan vs. Walmart | Freeport McMoRan vs. BYD Co | Freeport McMoRan vs. Volkswagen AG | Freeport McMoRan vs. Volkswagen AG Non Vtg |
| BP Plc vs. URU Metals | BP Plc vs. Golden Metal Resources | BP Plc vs. Host Hotels Resorts | BP Plc vs. Fulcrum Metals PLC |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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