Correlation Between Industrial and BP Plc
Can any of the company-specific risk be diversified away by investing in both Industrial 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 Industrial and BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial and Commercial and BP plc, you can compare the effects of market volatilities on Industrial 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 Industrial with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and BP Plc.
Diversification Opportunities for Industrial and BP Plc
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Industrial and BSU is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Industrial 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 Industrial and Commercial 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 Industrial i.e., Industrial and BP Plc go up and down completely randomly.
Pair Corralation between Industrial and BP Plc
Assuming the 90 days horizon Industrial and Commercial is expected to generate 1.86 times more return on investment than BP Plc. However, Industrial is 1.86 times more volatile than BP plc. It trades about 0.02 of its potential returns per unit of risk. BP plc is currently generating about -0.01 per unit of risk. If you would invest 53.00 in Industrial and Commercial on September 1, 2024 and sell it today you would earn a total of 2.00 from holding Industrial and Commercial or generate 3.77% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 99.74% |
Values | Daily Returns |
Industrial and Commercial vs. BP plc
Performance |
Timeline |
Industrial and Commercial |
BP plc |
Industrial and BP Plc Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Industrial and BP Plc
The main advantage of trading using opposite Industrial and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial 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.Industrial vs. UNITED UTILITIES GR | Industrial vs. Arrow Electronics | Industrial vs. AGRICULTBK HADR25 YC | Industrial vs. H FARM SPA |
BP Plc vs. TFS FINANCIAL | BP Plc vs. AGRICULTBK HADR25 YC | BP Plc vs. OAKTRSPECLENDNEW | BP Plc vs. The Hanover Insurance |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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