Correlation Between Chevron and BP Plc
Can any of the company-specific risk be diversified away by investing in both Chevron and BP 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 Chevron and BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron and BP plc, you can compare the effects of market volatilities on Chevron and BP 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 Chevron with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron and BP Plc.
Diversification Opportunities for Chevron and BP Plc
Very good diversification
The 3 months correlation between Chevron and BSU is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Chevron 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 Chevron are associated (or correlated) with BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Chevron i.e., Chevron and BP Plc go up and down completely randomly.
Pair Corralation between Chevron and BP Plc
Assuming the 90 days horizon Chevron is expected to generate 1.44 times more return on investment than BP Plc. However, Chevron is 1.44 times more volatile than BP plc. It trades about 0.43 of its potential returns per unit of risk. BP plc is currently generating about 0.2 per unit of risk. If you would invest 13,568 in Chevron on September 1, 2024 and sell it today you would earn a total of 2,030 from holding Chevron or generate 14.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Chevron vs. BP plc
Performance |
| Timeline |
| Chevron |
| BP plc |
Chevron and BP Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chevron and BP Plc
The main advantage of trading using opposite Chevron and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron position performs unexpectedly, BP 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 BP Plc will offset losses from the drop in BP Plc's long position.| Chevron vs. KAUFMAN ET BROAD | Chevron vs. PREMIER FOODS | Chevron vs. Air Transport Services | Chevron vs. Gold Road Resources |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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