Correlation Between BHP Group and Australian Agricultural
Can any of the company-specific risk be diversified away by investing in both BHP Group and Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural, you can compare the effects of market volatilities on BHP Group and Australian Agricultural 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 Australian Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Australian Agricultural.
Diversification Opportunities for BHP Group and Australian Agricultural
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between BHP and Australian is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural 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 Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of BHP Group i.e., BHP Group and Australian Agricultural go up and down completely randomly.
Pair Corralation between BHP Group and Australian Agricultural
Assuming the 90 days trading horizon BHP Group is expected to generate 8.53 times less return on investment than Australian Agricultural. But when comparing it to its historical volatility, BHP Group Limited is 1.16 times less risky than Australian Agricultural. It trades about 0.04 of its potential returns per unit of risk. Australian Agricultural is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 138.00 in Australian Agricultural on December 4, 2024 and sell it today you would earn a total of 13.00 from holding Australian Agricultural or generate 9.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Australian Agricultural
Performance |
| Timeline |
| BHP Group Limited |
| Australian Agricultural |
BHP Group and Australian Agricultural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Australian Agricultural
The main advantage of trading using opposite BHP Group and Australian Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Australian Agricultural 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 Australian Agricultural will offset losses from the drop in Australian Agricultural's long position.| BHP Group vs. Aspire Mining | ||
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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 CEOs Directory module to screen CEOs from public companies around the world.
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