Correlation Between BP Plc and Chevron Corp

Can any of the company-specific risk be diversified away by investing in both BP Plc and Chevron Corp 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 Chevron Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BP plc and Chevron Corp, you can compare the effects of market volatilities on BP Plc and Chevron Corp 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 Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and Chevron Corp.

Diversification Opportunities for BP Plc and Chevron Corp

0.55

Correlation Coefficient

BP Plc  Chevron Corp

Very weak diversification

The 3 months correlation between BPN and Chevron is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of BP Plc i.e., BP Plc and Chevron Corp go up and down completely randomly.

Pair Corralation between BP Plc and Chevron Corp

Assuming the 90 days trading horizon BP plc is expected to generate 2.09 times more return on investment than Chevron Corp. However, BP Plc is 2.09 times more volatile than Chevron Corp. It trades about 0.02 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.0 per unit of risk. If you would invest  60,533  in BP plc on February 23, 2024 and sell it today you would earn a total of  967.00  from holding BP plc or generate 1.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

BP plc  vs.  Chevron Corp

BP plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, BP Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chevron Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BP Plc and Chevron Corp

The main advantage of trading using opposite BP Plc and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Plc position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.

The idea behind BP plc and Chevron Corp 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.