Correlation Between Unit and BP Plc
Can any of the company-specific risk be diversified away by investing in both Unit 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 Unit and BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Unit Corporation and BP plc, you can compare the effects of market volatilities on Unit 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 Unit with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unit and BP Plc.
Diversification Opportunities for Unit and BP Plc
Poor diversification
The 3 months correlation between Unit and BPAQF is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Unit Corp. and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Unit 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 Unit Corporation 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 Unit i.e., Unit and BP Plc go up and down completely randomly.
Pair Corralation between Unit and BP Plc
Given the investment horizon of 90 days Unit Corporation is expected to generate 1.19 times more return on investment than BP Plc. However, Unit is 1.19 times more volatile than BP plc. It trades about -0.04 of its potential returns per unit of risk. BP plc is currently generating about -0.11 per unit of risk. If you would invest 3,058 in Unit Corporation on August 28, 2024 and sell it today you would lose (86.00) from holding Unit Corporation or give up 2.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Unit Corp. vs. BP plc
Performance |
| Timeline |
| Unit |
| BP plc |
Unit and BP Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Unit and BP Plc
The main advantage of trading using opposite Unit and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unit 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.The idea behind Unit Corporation and BP plc 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.| BP Plc vs. Unit Corporation | BP Plc vs. Galp Energa | BP Plc vs. Ecopetrol SA ADR | 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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