Correlation Between Chevron Corp and BP PLC
Can any of the company-specific risk be diversified away by investing in both Chevron Corp 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 Chevron Corp and BP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron Corp and BP PLC ADR, you can compare the effects of market volatilities on Chevron Corp 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 Chevron Corp with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and BP PLC.
Diversification Opportunities for Chevron Corp and BP PLC
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Chevron and BP PLC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp 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 Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and BP PLC go up and down completely randomly.
Pair Corralation between Chevron Corp and BP PLC
Considering the 90-day investment horizon Chevron Corp is expected to generate 2.34 times less return on investment than BP PLC. But when comparing it to its historical volatility, Chevron Corp is 1.08 times less risky than BP PLC. It trades about 0.09 of its potential returns per unit of risk. BP PLC ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 3,779 in BP PLC ADR on January 16, 2024 and sell it today you would earn a total of 128.00 from holding BP PLC ADR or generate 3.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chevron Corp vs. BP PLC ADR
Performance |
| Timeline |
| Chevron Corp |
| BP PLC ADR |
Chevron Corp and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chevron Corp and BP PLC
The main advantage of trading using opposite Chevron Corp and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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