Correlation Between BP PLC and SBM Offshore
Can any of the company-specific risk be diversified away by investing in both BP PLC and SBM Offshore 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 SBM Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP PLC and SBM Offshore NV, you can compare the effects of market volatilities on BP PLC and SBM Offshore 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 SBM Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and SBM Offshore.
Diversification Opportunities for BP PLC and SBM Offshore
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BP PLC and SBM is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV 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 SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of BP PLC i.e., BP PLC and SBM Offshore go up and down completely randomly.
Pair Corralation between BP PLC and SBM Offshore
Assuming the 90 days trading horizon BP PLC is expected to generate 0.71 times more return on investment than SBM Offshore. However, BP PLC is 1.4 times less risky than SBM Offshore. It trades about 0.13 of its potential returns per unit of risk. SBM Offshore NV is currently generating about 0.0 per unit of risk. If you would invest 50,860 in BP PLC on January 29, 2024 and sell it today you would earn a total of 1,620 from holding BP PLC or generate 3.19% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
BP PLC vs. SBM Offshore NV
Performance |
Timeline |
BP PLC |
SBM Offshore NV |
BP PLC and SBM Offshore Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with BP PLC and SBM Offshore
The main advantage of trading using opposite BP PLC and SBM Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, SBM Offshore 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 SBM Offshore will offset losses from the drop in SBM Offshore's long position.BP PLC vs. Zoom Video Communications | BP PLC vs. Premier Foods PLC | BP PLC vs. Atalaya Mining | BP PLC vs. Anglo American PLC |
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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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