Correlation Between BP PLC and Cenovus Energy

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Can any of the company-specific risk be diversified away by investing in both BP PLC and Cenovus Energy 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 BP PLC and Cenovus Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP PLC ADR and Cenovus Energy, you can compare the effects of market volatilities on BP PLC and Cenovus Energy 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 BP PLC with a short position of Cenovus Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Cenovus Energy.

Diversification Opportunities for BP PLC and Cenovus Energy

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between BP PLC and Cenovus is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Cenovus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cenovus Energy and BP 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 BP PLC ADR are associated (or correlated) with Cenovus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cenovus Energy has no effect on the direction of BP PLC i.e., BP PLC and Cenovus Energy go up and down completely randomly.

Pair Corralation between BP PLC and Cenovus Energy

Allowing for the 90-day total investment horizon BP PLC is expected to generate 2.31 times less return on investment than Cenovus Energy. But when comparing it to its historical volatility, BP PLC ADR is 1.34 times less risky than Cenovus Energy. It trades about 0.29 of its potential returns per unit of risk. Cenovus Energy is currently generating about 0.5 of returns per unit of risk over similar time horizon. If you would invest  1,743  in Cenovus Energy on December 29, 2023 and sell it today you would earn a total of  241.00  from holding Cenovus Energy or generate 13.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

BP PLC ADR  vs.  Cenovus Energy

 Performance 
       Timeline  
BP PLC ADR 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in BP PLC ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, BP PLC may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Cenovus Energy 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Cenovus Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Cenovus Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

BP PLC and Cenovus Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BP PLC and Cenovus Energy

The main advantage of trading using opposite BP PLC and Cenovus Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, Cenovus Energy 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 Cenovus Energy will offset losses from the drop in Cenovus Energy's long position.
The idea behind BP PLC ADR and Cenovus Energy 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.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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