Correlation Between Dynagas LNG and BP PLC

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

By analyzing existing cross correlation between Dynagas LNG Partners and BP PLC ADR, you can compare the effects of market volatilities on Dynagas LNG 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 Dynagas LNG with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dynagas LNG and BP PLC.

Diversification Opportunities for Dynagas LNG and BP PLC

-0.52

Correlation Coefficient

Dynagas LNG  BP PLC

Excellent diversification

The 3 months correlation between Dynagas and BP PLC is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Dynagas LNG Partners 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 Dynagas LNG 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 Dynagas LNG Partners 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 Dynagas LNG i.e., Dynagas LNG and BP PLC go up and down completely randomly.

Pair Corralation between Dynagas LNG and BP PLC

Given the investment horizon of 90 days Dynagas LNG Partners is expected to generate 1.7 times more return on investment than BP PLC. However, Dynagas LNG is 1.7 times more volatile than BP PLC ADR. It trades about 0.05 of its potential returns per unit of risk. BP PLC ADR is currently generating about -0.11 per unit of risk. If you would invest  448.00  in Dynagas LNG Partners on September 23, 2024 and sell it today you would earn a total of  9.00  from holding Dynagas LNG Partners or generate 2.01% return on investment over 90 days.

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

Dynagas LNG Partners  vs.  BP PLC ADR

Dynagas LNG Partners

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dynagas LNG Partners are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dynagas LNG reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest conflicting performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Dynagas LNG and BP PLC

The main advantage of trading using opposite Dynagas LNG and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dynagas LNG 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.

The idea behind Dynagas LNG Partners and BP PLC ADR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.