Correlation Between BHP Group and ABSA Bank
Can any of the company-specific risk be diversified away by investing in both BHP Group and ABSA Bank 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 BHP Group and ABSA Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BHP Group Limited and ABSA Bank Limited, you can compare the effects of market volatilities on BHP Group and ABSA Bank 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 BHP Group with a short position of ABSA Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and ABSA Bank.
Diversification Opportunities for BHP Group and ABSA Bank
Significant diversification
The 3 months correlation between BHP and ABSA is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and ABSA Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABSA Bank Limited and BHP Group 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 BHP Group Limited are associated (or correlated) with ABSA Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABSA Bank Limited has no effect on the direction of BHP Group i.e., BHP Group and ABSA Bank go up and down completely randomly.
Pair Corralation between BHP Group and ABSA Bank
Assuming the 90 days trading horizon BHP Group Limited is expected to generate 1.36 times more return on investment than ABSA Bank. However, BHP Group is 1.36 times more volatile than ABSA Bank Limited. It trades about 0.0 of its potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.0 per unit of risk. If you would invest 4,781,125 in BHP Group Limited on December 12, 2024 and sell it today you would lose (222,725) from holding BHP Group Limited or give up 4.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. ABSA Bank Limited
Performance |
| Timeline |
| BHP Group Limited |
| ABSA Bank Limited |
BHP Group and ABSA Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and ABSA Bank
The main advantage of trading using opposite BHP Group and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, ABSA Bank 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 ABSA Bank will offset losses from the drop in ABSA Bank's long position.| BHP Group vs. Advtech | ||
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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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