Correlation Between Shell PLC and BP PLC
Can any of the company-specific risk be diversified away by investing in both Shell PLC 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 Shell PLC and BP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shell PLC ADR and BP PLC ADR, you can compare the effects of market volatilities on Shell PLC 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 Shell PLC with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell PLC and BP PLC.
Diversification Opportunities for Shell PLC and BP PLC
Very poor diversification
The 3 months correlation between Shell and BP PLC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC ADR 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 Shell PLC 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 Shell PLC ADR 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 Shell PLC i.e., Shell PLC and BP PLC go up and down completely randomly.
Pair Corralation between Shell PLC and BP PLC
Given the investment horizon of 90 days Shell PLC ADR is expected to generate 0.65 times more return on investment than BP PLC. However, Shell PLC ADR is 1.54 times less risky than BP PLC. It trades about -0.01 of its potential returns per unit of risk. BP PLC ADR is currently generating about -0.1 per unit of risk. If you would invest 6,535 in Shell PLC ADR on August 28, 2024 and sell it today you would lose (30.00) from holding Shell PLC ADR or give up 0.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shell PLC ADR vs. BP PLC ADR
Performance |
| Timeline |
| Shell PLC ADR |
| BP PLC ADR |
Shell PLC and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shell PLC and BP PLC
The main advantage of trading using opposite Shell PLC and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shell PLC 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.| Shell PLC vs. Exxon Mobil Corp | Shell PLC vs. Chevron Corp | Shell PLC vs. TotalEnergies SE ADR | Shell PLC vs. Petroleo Brasileiro Petrobras |
| BP PLC vs. TotalEnergies SE ADR | BP PLC vs. Chevron Corp | BP PLC vs. Exxon Mobil Corp | BP PLC vs. Equinor ASA ADR |
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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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