Correlation Between BHP Group and Collins Foods
Can any of the company-specific risk be diversified away by investing in both BHP Group and Collins Foods 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 Collins Foods 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 Collins Foods, you can compare the effects of market volatilities on BHP Group and Collins Foods 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 Collins Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Collins Foods.
Diversification Opportunities for BHP Group and Collins Foods
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BHP and Collins is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Collins Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collins Foods 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 Collins Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collins Foods has no effect on the direction of BHP Group i.e., BHP Group and Collins Foods go up and down completely randomly.
Pair Corralation between BHP Group and Collins Foods
Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.94 times more return on investment than Collins Foods. However, BHP Group Limited is 1.07 times less risky than Collins Foods. It trades about 0.03 of its potential returns per unit of risk. Collins Foods is currently generating about -0.21 per unit of risk. If you would invest 4,163 in BHP Group Limited on September 12, 2024 and sell it today you would earn a total of 20.00 from holding BHP Group Limited or generate 0.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Collins Foods
Performance |
| Timeline |
| BHP Group Limited |
| Collins Foods |
BHP Group and Collins Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Collins Foods
The main advantage of trading using opposite BHP Group and Collins Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Collins Foods 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 Collins Foods will offset losses from the drop in Collins Foods' long position.| BHP Group vs. Northern Star Resources | BHP Group vs. Evolution Mining | BHP Group vs. Bluescope Steel | BHP Group vs. Sandfire Resources NL |
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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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