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 and Equinor ASA, 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
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BPAQF and Equinor is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA 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 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 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
Assuming the 90 days horizon BP plc is expected to under-perform the Equinor ASA. But the pink sheet apears to be less risky and, when comparing its historical volatility, BP plc is 1.4 times less risky than Equinor ASA. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Equinor ASA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,319 in Equinor ASA on August 24, 2024 and sell it today you would earn a total of 140.00 from holding Equinor ASA or generate 6.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP plc vs. Equinor ASA
Performance |
| Timeline |
| BP plc |
| Equinor ASA |
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.The idea behind BP plc and Equinor ASA 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.| Equinor ASA vs. Shell PLC ADR | Equinor ASA vs. Equinor ASA ADR | Equinor ASA vs. BP PLC ADR | Equinor ASA vs. Eni SpA ADR |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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