Correlation Between Eni SPA and BP PLC
Can any of the company-specific risk be diversified away by investing in both Eni SPA 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 Eni SPA and BP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eni SpA ADR and BP PLC ADR, you can compare the effects of market volatilities on Eni SPA 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 Eni SPA with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eni SPA and BP PLC.
Diversification Opportunities for Eni SPA and BP PLC
Poor diversification
The 3 months correlation between Eni and BP PLC is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA 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 Eni SPA 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 Eni SpA 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 Eni SPA i.e., Eni SPA and BP PLC go up and down completely randomly.
Pair Corralation between Eni SPA and BP PLC
Taking into account the 90-day investment horizon Eni SpA ADR is expected to generate 0.92 times more return on investment than BP PLC. However, Eni SpA ADR is 1.09 times less risky than BP PLC. It trades about 0.05 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 2,826 in Eni SpA ADR on January 21, 2024 and sell it today you would earn a total of 425.00 from holding Eni SpA ADR or generate 15.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eni SpA ADR vs. BP PLC ADR
Performance |
| Timeline |
| Eni SpA ADR |
| BP PLC ADR |
Eni SPA and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eni SPA and BP PLC
The main advantage of trading using opposite Eni SPA and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eni SPA 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 Eni SpA ADR and BP PLC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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