Correlation Between Imperial Oil and BP PLC
Can any of the company-specific risk be diversified away by investing in both Imperial Oil 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 Imperial Oil and BP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Imperial Oil and BP PLC ADR, you can compare the effects of market volatilities on Imperial Oil 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 Imperial Oil with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Oil and BP PLC.
Diversification Opportunities for Imperial Oil and BP PLC
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Imperial and BP PLC is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and BP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC ADR and Imperial Oil 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 Imperial Oil 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 ADR has no effect on the direction of Imperial Oil i.e., Imperial Oil and BP PLC go up and down completely randomly.
Pair Corralation between Imperial Oil and BP PLC
Considering the 90-day investment horizon Imperial Oil is expected to generate 1.25 times more return on investment than BP PLC. However, Imperial Oil is 1.25 times more volatile than BP PLC ADR. It trades about 0.08 of its potential returns per unit of risk. BP PLC ADR is currently generating about -0.02 per unit of risk. If you would invest 4,816 in Imperial Oil on August 31, 2024 and sell it today you would earn a total of 2,576 from holding Imperial Oil or generate 53.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Imperial Oil vs. BP PLC ADR
Performance |
| Timeline |
| Imperial Oil |
| BP PLC ADR |
Imperial Oil and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Imperial Oil and BP PLC
The main advantage of trading using opposite Imperial Oil and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Oil 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.| Imperial Oil vs. RLJ Lodging Trust | Imperial Oil vs. Aquagold International | Imperial Oil vs. Stepstone Group | Imperial Oil vs. Morningstar Unconstrained Allocation |
| BP PLC vs. RLJ Lodging Trust | BP PLC vs. Aquagold International | BP PLC vs. Stepstone Group | BP PLC vs. Morningstar Unconstrained Allocation |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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