Correlation Between BHP Group and Alligator Energy
Can any of the company-specific risk be diversified away by investing in both BHP Group and Alligator Energy 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 Alligator Energy 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 Alligator Energy, you can compare the effects of market volatilities on BHP Group and Alligator Energy 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 Alligator Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Alligator Energy.
Diversification Opportunities for BHP Group and Alligator Energy
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BHP and Alligator is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Alligator Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alligator Energy 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 Alligator Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alligator Energy has no effect on the direction of BHP Group i.e., BHP Group and Alligator Energy go up and down completely randomly.
Pair Corralation between BHP Group and Alligator Energy
Assuming the 90 days trading horizon BHP Group is expected to generate 17.41 times less return on investment than Alligator Energy. But when comparing it to its historical volatility, BHP Group Limited is 3.65 times less risky than Alligator Energy. It trades about 0.01 of its potential returns per unit of risk. Alligator Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3.60 in Alligator Energy on August 31, 2024 and sell it today you would earn a total of 0.30 from holding Alligator Energy or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.74% |
| Values | Daily Returns |
BHP Group Limited vs. Alligator Energy
Performance |
| Timeline |
| BHP Group Limited |
| Alligator Energy |
BHP Group and Alligator Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Alligator Energy
The main advantage of trading using opposite BHP Group and Alligator Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Alligator Energy 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 Alligator Energy will offset losses from the drop in Alligator Energy's long position.| BHP Group vs. Future Generation Global | BHP Group vs. Rubicon Water | BHP Group vs. Kinatico | BHP Group vs. Jade Gas Holdings |
| Alligator Energy vs. Aurelia Metals | Alligator Energy vs. Magellan Financial Group | Alligator Energy vs. Dexus Convenience Retail | Alligator Energy vs. Sky Metals |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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