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 DZ1, 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
Excellent diversification
The 3 months correlation between Chevron and BPE is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and BP PLC DZ1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC DZ1 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 DZ1 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 trading horizon Chevron is expected to generate 0.78 times more return on investment than BP PLC. However, Chevron is 1.28 times less risky than BP PLC. It trades about 0.01 of its potential returns per unit of risk. BP PLC DZ1 is currently generating about -0.02 per unit of risk. If you would invest 14,938 in Chevron on September 3, 2024 and sell it today you would earn a total of 362.00 from holding Chevron or generate 2.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chevron vs. BP PLC DZ1
Performance |
| Timeline |
| Chevron |
| BP PLC DZ1 |
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. BII Railway Transportation | Chevron vs. SWISS WATER DECAFFCOFFEE | Chevron vs. Broadcom | Chevron vs. BROADSTNET LEADL 00025 |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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