Correlation Between BP Plc and Volkswagen
Can any of the company-specific risk be diversified away by investing in both BP Plc and Volkswagen 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 Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP plc and Volkswagen AG, you can compare the effects of market volatilities on BP Plc and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and Volkswagen.
Diversification Opportunities for BP Plc and Volkswagen
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BPE5 and Volkswagen is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of BP Plc i.e., BP Plc and Volkswagen go up and down completely randomly.
Pair Corralation between BP Plc and Volkswagen
Assuming the 90 days trading horizon BP plc is expected to generate 1.14 times more return on investment than Volkswagen. However, BP Plc is 1.14 times more volatile than Volkswagen AG. It trades about 0.15 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.36 per unit of risk. If you would invest 443.00 in BP plc on September 1, 2024 and sell it today you would earn a total of 18.00 from holding BP plc or generate 4.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
BP plc vs. Volkswagen AG
Performance |
| Timeline |
| BP plc |
| Volkswagen AG |
BP Plc and Volkswagen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP Plc and Volkswagen
The main advantage of trading using opposite BP Plc and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Plc position performs unexpectedly, Volkswagen 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 Volkswagen will offset losses from the drop in Volkswagen's long position.| BP Plc vs. Transport International Holdings | BP Plc vs. JJ SNACK FOODS | BP Plc vs. COPLAND ROAD CAPITAL | BP Plc vs. QUEEN S ROAD |
| Volkswagen vs. SIVERS SEMICONDUCTORS AB | Volkswagen vs. Darden Restaurants | Volkswagen vs. Reliance Steel Aluminum | Volkswagen vs. Q2M Managementberatung AG |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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