Correlation Between Federal Agricultural and BHP Group
Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and BHP Group 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 Federal Agricultural and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Agricultural Mortgage and BHP Group Limited, you can compare the effects of market volatilities on Federal Agricultural and BHP Group 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 Federal Agricultural with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and BHP Group.
Diversification Opportunities for Federal Agricultural and BHP Group
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Federal and BHP is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited and Federal Agricultural 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 Federal Agricultural Mortgage are associated (or correlated) with BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and BHP Group go up and down completely randomly.
Pair Corralation between Federal Agricultural and BHP Group
Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 1.15 times more return on investment than BHP Group. However, Federal Agricultural is 1.15 times more volatile than BHP Group Limited. It trades about 0.1 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.07 per unit of risk. If you would invest 17,650 in Federal Agricultural Mortgage on September 2, 2024 and sell it today you would earn a total of 2,250 from holding Federal Agricultural Mortgage or generate 12.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federal Agricultural Mortgage vs. BHP Group Limited
Performance |
| Timeline |
| Federal Agricultural |
| BHP Group Limited |
Federal Agricultural and BHP Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Agricultural and BHP Group
The main advantage of trading using opposite Federal Agricultural and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural position performs unexpectedly, BHP Group 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 BHP Group will offset losses from the drop in BHP Group's long position.| Federal Agricultural vs. Lamar Advertising | Federal Agricultural vs. Apollo Medical Holdings | Federal Agricultural vs. CompuGroup Medical SE | Federal Agricultural vs. Carsales |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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