Correlation Between BP Plc and United Airlines
Can any of the company-specific risk be diversified away by investing in both BP Plc and United Airlines 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 United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP plc and United Airlines Holdings, you can compare the effects of market volatilities on BP Plc and United Airlines 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 United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and United Airlines.
Diversification Opportunities for BP Plc and United Airlines
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between BPN and United is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of BP Plc i.e., BP Plc and United Airlines go up and down completely randomly.
Pair Corralation between BP Plc and United Airlines
Assuming the 90 days trading horizon BP Plc is expected to generate 5.11 times less return on investment than United Airlines. But when comparing it to its historical volatility, BP plc is 3.82 times less risky than United Airlines. It trades about 0.32 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest 160,849 in United Airlines Holdings on September 4, 2024 and sell it today you would earn a total of 39,651 from holding United Airlines Holdings or generate 24.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
BP plc vs. United Airlines Holdings
Performance |
| Timeline |
| BP plc |
| United Airlines Holdings |
BP Plc and United Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP Plc and United Airlines
The main advantage of trading using opposite BP Plc and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Plc position performs unexpectedly, United Airlines 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 United Airlines will offset losses from the drop in United Airlines' long position.The idea behind BP plc and United Airlines Holdings 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.| United Airlines vs. Cognizant Technology Solutions | United Airlines vs. Applied Materials | United Airlines vs. DXC Technology | United Airlines vs. United States Steel |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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