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
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Chevron and BP PLC is 0.88. 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 0.8 times more return on investment than BP PLC. However, Chevron Corp is 1.25 times less risky than BP PLC. It trades about 0.26 of its potential returns per unit of risk. BP PLC ADR is currently generating about 0.13 per unit of risk. If you would invest 15,647 in Chevron Corp on January 25, 2024 and sell it today you would earn a total of 695.00 from holding Chevron Corp or generate 4.44% 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.| Chevron Corp vs. BP PLC ADR | Chevron Corp vs. Shell PLC ADR | Chevron Corp vs. Petroleo Brasileiro Petrobras | Chevron Corp vs. Suncor Energy |
| BP PLC vs. TotalEnergies SE ADR | BP PLC vs. Chevron Corp | BP PLC vs. Exxon Mobil Corp | BP PLC vs. Equinor ASA ADR |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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