Correlation Between BP Plc and Rolls Royce
Can any of the company-specific risk be diversified away by investing in both BP Plc and Rolls Royce 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 Rolls Royce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP plc and Rolls Royce Holdings plc, you can compare the effects of market volatilities on BP Plc and Rolls Royce 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 Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and Rolls Royce.
Diversification Opportunities for BP Plc and Rolls Royce
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between BPE5 and Rolls is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Rolls Royce Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of BP Plc i.e., BP Plc and Rolls Royce go up and down completely randomly.
Pair Corralation between BP Plc and Rolls Royce
Assuming the 90 days trading horizon BP plc is expected to under-perform the Rolls Royce. But the stock apears to be less risky and, when comparing its historical volatility, BP plc is 1.62 times less risky than Rolls Royce. The stock trades about -0.03 of its potential returns per unit of risk. The Rolls Royce Holdings plc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 176.00 in Rolls Royce Holdings plc on January 11, 2025 and sell it today you would earn a total of 645.00 from holding Rolls Royce Holdings plc or generate 366.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP plc vs. Rolls Royce Holdings plc
Performance |
| Timeline |
| BP plc |
| Rolls Royce Holdings |
BP Plc and Rolls Royce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP Plc and Rolls Royce
The main advantage of trading using opposite BP Plc and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Plc position performs unexpectedly, Rolls Royce 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 Rolls Royce will offset losses from the drop in Rolls Royce's long position.| BP Plc vs. Exxon Mobil | BP Plc vs. Chevron | BP Plc vs. TotalEnergies SE | BP Plc vs. PetroChina Company Limited |
| Rolls Royce vs. JD SPORTS FASH | Rolls Royce vs. Columbia Sportswear | Rolls Royce vs. Cardinal Health | Rolls Royce vs. PETCO HEALTH CLA |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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