Correlation Between BP Prudhoe and Exxon

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

By analyzing existing cross correlation between BP Prudhoe Bay and Exxon Mobil Corp, you can compare the effects of market volatilities on BP Prudhoe 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 Prudhoe with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Prudhoe and Exxon.

Diversification Opportunities for BP Prudhoe and Exxon

0.03

Correlation Coefficient

BP Prudhoe  Exxon

Significant diversification

The 3 months correlation between BPT and Exxon is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding BP Prudhoe Bay and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil Corp and BP Prudhoe 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 Prudhoe Bay 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 Corp has no effect on the direction of BP Prudhoe i.e., BP Prudhoe and Exxon go up and down completely randomly.

Pair Corralation between BP Prudhoe and Exxon

Considering the 90-day investment horizon BP Prudhoe Bay is expected to under-perform the Exxon. In addition to that, BP Prudhoe is 7.67 times more volatile than Exxon Mobil Corp. It trades about 0.0 of its total potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.31 per unit of volatility. If you would invest  11,465  in Exxon Mobil Corp on January 25, 2024 and sell it today you would earn a total of  640.00  from holding Exxon Mobil Corp or generate 5.58% return on investment over 90 days.

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

BP Prudhoe Bay  vs.  Exxon Mobil Corp

BP Prudhoe Bay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP Prudhoe Bay has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Exxon Mobil Corp

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BP Prudhoe and Exxon

The main advantage of trading using opposite BP Prudhoe and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Prudhoe 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 Prudhoe Bay and Exxon Mobil 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.