Correlation Between Adams Resources and BP PLC
Can any of the company-specific risk be diversified away by investing in both Adams Resources 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 Adams Resources and BP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adams Resources Energy and BP PLC ADR, you can compare the effects of market volatilities on Adams Resources 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 Adams Resources with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adams Resources and BP PLC.
Diversification Opportunities for Adams Resources and BP PLC
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Adams and BP PLC is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Adams Resources Energy 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 Adams Resources 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 Adams Resources Energy 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 Adams Resources i.e., Adams Resources and BP PLC go up and down completely randomly.
Pair Corralation between Adams Resources and BP PLC
Allowing for the 90-day total investment horizon Adams Resources Energy is expected to generate 2.65 times more return on investment than BP PLC. However, Adams Resources is 2.65 times more volatile than BP PLC ADR. It trades about 0.28 of its potential returns per unit of risk. BP PLC ADR is currently generating about 0.01 per unit of risk. If you would invest 2,567 in Adams Resources Energy on January 20, 2024 and sell it today you would earn a total of 385.00 from holding Adams Resources Energy or generate 15.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Adams Resources Energy vs. BP PLC ADR
Performance |
| Timeline |
| Adams Resources Energy |
| BP PLC ADR |
Adams Resources and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Adams Resources and BP PLC
The main advantage of trading using opposite Adams Resources and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adams Resources 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.| Adams Resources vs. Delek Logistics Partners | Adams Resources vs. Crossamerica Partners LP | Adams Resources vs. Sunoco LP |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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