Correlation Between BHP Group and Woolworths
Can any of the company-specific risk be diversified away by investing in both BHP Group and Woolworths 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 Woolworths 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 Woolworths, you can compare the effects of market volatilities on BHP Group and Woolworths 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 Woolworths. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Woolworths.
Diversification Opportunities for BHP Group and Woolworths
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BHP and Woolworths is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Woolworths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths 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 Woolworths. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths has no effect on the direction of BHP Group i.e., BHP Group and Woolworths go up and down completely randomly.
Pair Corralation between BHP Group and Woolworths
Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the Woolworths. In addition to that, BHP Group is 1.28 times more volatile than Woolworths. It trades about -0.22 of its total potential returns per unit of risk. Woolworths is currently generating about -0.1 per unit of volatility. If you would invest 3,081 in Woolworths on August 31, 2024 and sell it today you would lose (63.00) from holding Woolworths or give up 2.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Woolworths
Performance |
| Timeline |
| BHP Group Limited |
| Woolworths |
BHP Group and Woolworths Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Woolworths
The main advantage of trading using opposite BHP Group and Woolworths positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Woolworths 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 Woolworths will offset losses from the drop in Woolworths' long position.| BHP Group vs. Future Generation Global | BHP Group vs. Rubicon Water | BHP Group vs. Kinatico | BHP Group vs. Jade Gas Holdings |
| Woolworths vs. Garda Diversified Ppty | Woolworths vs. Hudson Investment Group | Woolworths vs. Retail Food Group | Woolworths vs. Premier Investments |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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