Correlation Between BP PLC and Equinor ASA
Can any of the company-specific risk be diversified away by investing in both BP PLC and Equinor ASA 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 Equinor ASA 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 Equinor ASA ADR, you can compare the effects of market volatilities on BP PLC and Equinor ASA 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 Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Equinor ASA.
Diversification Opportunities for BP PLC and Equinor ASA
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between BP PLC and Equinor is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of BP PLC i.e., BP PLC and Equinor ASA go up and down completely randomly.
Pair Corralation between BP PLC and Equinor ASA
Allowing for the 90-day total investment horizon BP PLC is expected to generate 1.28 times less return on investment than Equinor ASA. But when comparing it to its historical volatility, BP PLC ADR is 1.33 times less risky than Equinor ASA. It trades about 0.19 of its potential returns per unit of risk. Equinor ASA ADR is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 2,494 in Equinor ASA ADR on January 20, 2024 and sell it today you would earn a total of 229.00 from holding Equinor ASA ADR or generate 9.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP PLC ADR vs. Equinor ASA ADR
Performance |
| Timeline |
| BP PLC ADR |
| Equinor ASA ADR |
BP PLC and Equinor ASA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP PLC and Equinor ASA
The main advantage of trading using opposite BP PLC and Equinor ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, Equinor ASA 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 Equinor ASA will offset losses from the drop in Equinor ASA's long position.The idea behind BP PLC ADR and Equinor ASA ADR 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
Other Complementary Tools
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Stocks Directory Find actively traded stocks across global markets | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas |