Correlation Between Frontline and BP Prudhoe

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Can any of the company-specific risk be diversified away by investing in both Frontline and BP Prudhoe 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 Frontline and BP Prudhoe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Frontline and BP Prudhoe Bay, you can compare the effects of market volatilities on Frontline and BP Prudhoe 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 Frontline with a short position of BP Prudhoe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontline and BP Prudhoe.

Diversification Opportunities for Frontline and BP Prudhoe

FrontlineBPTDiversified AwayFrontlineBPTDiversified Away100%
0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between Frontline and BPT is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and BP Prudhoe Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Prudhoe Bay and Frontline 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 Frontline are associated (or correlated) with BP Prudhoe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Prudhoe Bay has no effect on the direction of Frontline i.e., Frontline and BP Prudhoe go up and down completely randomly.

Pair Corralation between Frontline and BP Prudhoe

Considering the 90-day investment horizon Frontline is expected to generate 15.36 times less return on investment than BP Prudhoe. But when comparing it to its historical volatility, Frontline is 2.35 times less risky than BP Prudhoe. It trades about 0.03 of its potential returns per unit of risk. BP Prudhoe Bay is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  50.00  in BP Prudhoe Bay on November 23, 2024 and sell it today you would earn a total of  11.00  from holding BP Prudhoe Bay or generate 22.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Frontline  vs.  BP Prudhoe Bay

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -50-40-30-20-100
JavaScript chart by amCharts 3.21.15FRO BPT
       Timeline  
Frontline 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Frontline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb141516171819
BP Prudhoe Bay 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days BP Prudhoe Bay has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb0.40.50.60.70.80.911.1

Frontline and BP Prudhoe Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.95-4.46-2.96-1.47-0.02491.382.834.285.737.18 0.0100.0150.0200.0250.030
JavaScript chart by amCharts 3.21.15FRO BPT
       Returns  

Pair Trading with Frontline and BP Prudhoe

The main advantage of trading using opposite Frontline and BP Prudhoe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Frontline position performs unexpectedly, BP Prudhoe 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 Prudhoe will offset losses from the drop in BP Prudhoe's long position.
The idea behind Frontline and BP Prudhoe Bay 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.
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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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