Correlation Between BP PLC and Shell PLC
Can any of the company-specific risk be diversified away by investing in both BP PLC and Shell 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 BP PLC and Shell PLC 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 Shell PLC ADR, you can compare the effects of market volatilities on BP PLC and Shell 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 BP PLC with a short position of Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Shell PLC.
Diversification Opportunities for BP PLC and Shell PLC
Poor diversification
The 3 months correlation between BP PLC and Shell is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC ADR has no effect on the direction of BP PLC i.e., BP PLC and Shell PLC go up and down completely randomly.
Pair Corralation between BP PLC and Shell PLC
Allowing for the 90-day total investment horizon BP PLC ADR is expected to generate 1.43 times more return on investment than Shell PLC. However, BP PLC is 1.43 times more volatile than Shell PLC ADR. It trades about 0.28 of its potential returns per unit of risk. Shell PLC ADR is currently generating about 0.07 per unit of risk. If you would invest 3,169 in BP PLC ADR on November 18, 2024 and sell it today you would earn a total of 331.00 from holding BP PLC ADR or generate 10.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP PLC ADR vs. Shell PLC ADR
Performance |
| Timeline |
| BP PLC ADR |
| Shell PLC ADR |
BP PLC and Shell PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP PLC and Shell PLC
The main advantage of trading using opposite BP PLC and Shell PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, Shell 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 Shell PLC will offset losses from the drop in Shell PLC'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 |
| Shell PLC vs. Exxon Mobil Corp | Shell PLC vs. Chevron Corp | Shell PLC vs. TotalEnergies SE ADR | Shell PLC vs. Petroleo Brasileiro Petrobras |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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