Correlation Between BP Plc and Exxon

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

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

Diversification Opportunities for BP Plc and Exxon

0.57

Correlation Coefficient

BP Plc  Exxon

Very weak diversification

The 3 months correlation between BPN and Exxon is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of BP Plc i.e., BP Plc and Exxon go up and down completely randomly.

Pair Corralation between BP Plc and Exxon

Assuming the 90 days trading horizon BP Plc is expected to generate 2.06 times less return on investment than Exxon. In addition to that, BP Plc is 2.4 times more volatile than Exxon Mobil. It trades about 0.02 of its total potential returns per unit of risk. Exxon Mobil is currently generating about 0.1 per unit of volatility. If you would invest  178,945  in Exxon Mobil on March 1, 2024 and sell it today you would earn a total of  12,555  from holding Exxon Mobil or generate 7.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

BP plc  vs.  Exxon Mobil

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.

Exxon Mobil

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with BP Plc and Exxon

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

The idea behind BP plc and Exxon Mobil 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.