Correlation Between BHP Group and Errawarra Resources
Can any of the company-specific risk be diversified away by investing in both BHP Group and Errawarra Resources 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 Errawarra Resources 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 Errawarra Resources, you can compare the effects of market volatilities on BHP Group and Errawarra Resources 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 Errawarra Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Errawarra Resources.
Diversification Opportunities for BHP Group and Errawarra Resources
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BHP and Errawarra is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Errawarra Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Errawarra Resources 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 Errawarra Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Errawarra Resources has no effect on the direction of BHP Group i.e., BHP Group and Errawarra Resources go up and down completely randomly.
Pair Corralation between BHP Group and Errawarra Resources
Assuming the 90 days trading horizon BHP Group is expected to generate 133.58 times less return on investment than Errawarra Resources. But when comparing it to its historical volatility, BHP Group Limited is 7.56 times less risky than Errawarra Resources. It trades about 0.0 of its potential returns per unit of risk. Errawarra Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 25.00 in Errawarra Resources on August 27, 2024 and sell it today you would lose (18.90) from holding Errawarra Resources or give up 75.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Errawarra Resources
Performance |
| Timeline |
| BHP Group Limited |
| Errawarra Resources |
BHP Group and Errawarra Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Errawarra Resources
The main advantage of trading using opposite BHP Group and Errawarra Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Errawarra Resources 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 Errawarra Resources will offset losses from the drop in Errawarra Resources' long position.| BHP Group vs. Saferoads Holdings | BHP Group vs. Aussie Broadband | BHP Group vs. WiseTech Global Limited | BHP Group vs. Mach7 Technologies |
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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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