Correlation Between BP PLC and Kodiak Gas

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

By analyzing existing cross correlation between BP PLC ADR and Kodiak Gas Services,, you can compare the effects of market volatilities on BP PLC and Kodiak Gas 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 Kodiak Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Kodiak Gas.

Diversification Opportunities for BP PLC and Kodiak Gas

-0.47

Correlation Coefficient

BP PLC  Kodiak Gas

Very good diversification

The 3 months correlation between BP PLC and Kodiak is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Kodiak Gas Services, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kodiak Gas Services, 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 ADR are associated (or correlated) with Kodiak Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kodiak Gas Services, has no effect on the direction of BP PLC i.e., BP PLC and Kodiak Gas go up and down completely randomly.

Pair Corralation between BP PLC and Kodiak Gas

Allowing for the 90-day total investment horizon BP PLC ADR is expected to under-perform the Kodiak Gas. But the stock apears to be less risky and, when comparing its historical volatility, BP PLC ADR is 1.1 times less risky than Kodiak Gas. The stock trades about -0.18 of its potential returns per unit of risk. The Kodiak Gas Services, is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,900  in Kodiak Gas Services, on August 1, 2024 and sell it today you would earn a total of  281.00  from holding Kodiak Gas Services, or generate 9.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BP PLC ADR  vs.  Kodiak Gas Services,

BP PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in November 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Kodiak Gas Services,

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kodiak Gas Services, are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Kodiak Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BP PLC and Kodiak Gas

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

The idea behind BP PLC ADR and Kodiak Gas Services, 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.