Correlation Between BP PLC and Natural Gas
Can any of the company-specific risk be diversified away by investing in both BP PLC and Natural Gas 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 Natural Gas 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 Natural Gas Services, you can compare the effects of market volatilities on BP PLC and Natural Gas 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 Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Natural Gas.
Diversification Opportunities for BP PLC and Natural Gas
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BP PLC and Natural is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Natural Gas Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Services 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Services has no effect on the direction of BP PLC i.e., BP PLC and Natural Gas go up and down completely randomly.
Pair Corralation between BP PLC and Natural Gas
Allowing for the 90-day total investment horizon BP PLC ADR is expected to under-perform the Natural Gas. But the stock apears to be less risky and, when comparing its historical volatility, BP PLC ADR is 1.91 times less risky than Natural Gas. The stock trades about -0.07 of its potential returns per unit of risk. The Natural Gas Services is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest 1,993 in Natural Gas Services on August 27, 2024 and sell it today you would earn a total of 752.00 from holding Natural Gas Services or generate 37.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP PLC ADR vs. Natural Gas Services
Performance |
| Timeline |
| BP PLC ADR |
| Natural Gas Services |
BP PLC and Natural Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP PLC and Natural Gas
The main advantage of trading using opposite BP PLC and Natural Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, Natural Gas 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 Natural Gas will offset losses from the drop in Natural Gas' 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 |
| Natural Gas vs. ProPetro Holding Corp | Natural Gas vs. RPC Inc | Natural Gas vs. MRC Global | Natural Gas vs. Expro Group Holdings |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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