Correlation Between BP PLC and Equinor ASA
Can any of the company-specific risk be diversified away by investing in both BP PLC and Equinor ASA 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 BP PLC and Equinor ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP PLC ADR and Equinor ASA ADR, you can compare the effects of market volatilities on BP PLC and Equinor ASA 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 BP PLC with a short position of Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Equinor ASA.
Diversification Opportunities for BP PLC and Equinor ASA
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BP PLC and Equinor is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR and BP 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 BP PLC ADR are associated (or correlated) with Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of BP PLC i.e., BP PLC and Equinor ASA go up and down completely randomly.
Pair Corralation between BP PLC and Equinor ASA
Allowing for the 90-day total investment horizon BP PLC ADR is expected to generate 0.8 times more return on investment than Equinor ASA. However, BP PLC ADR is 1.25 times less risky than Equinor ASA. It trades about 0.0 of its potential returns per unit of risk. Equinor ASA ADR is currently generating about -0.01 per unit of risk. If you would invest 3,170 in BP PLC ADR on August 24, 2024 and sell it today you would lose (218.00) from holding BP PLC ADR or give up 6.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP PLC ADR vs. Equinor ASA ADR
Performance |
| Timeline |
| BP PLC ADR |
| Equinor ASA ADR |
BP PLC and Equinor ASA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP PLC and Equinor ASA
The main advantage of trading using opposite BP PLC and Equinor ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, Equinor ASA 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 Equinor ASA will offset losses from the drop in Equinor ASA's long position.| BP PLC vs. TotalEnergies SE ADR | BP PLC vs. Chevron Corp | BP PLC vs. Exxon Mobil Corp | BP PLC vs. Equinor ASA ADR |
| Equinor ASA vs. Shell PLC ADR | Equinor ASA vs. BP PLC ADR | Equinor ASA vs. Eni SpA ADR | Equinor ASA vs. Galp Energa |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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