Correlation Between BHP Group and Xref
Can any of the company-specific risk be diversified away by investing in both BHP Group and Xref 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 Xref 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 Xref, you can compare the effects of market volatilities on BHP Group and Xref 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 Xref. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Xref.
Diversification Opportunities for BHP Group and Xref
Good diversification
The 3 months correlation between BHP and Xref is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Xref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xref 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 Xref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xref has no effect on the direction of BHP Group i.e., BHP Group and Xref go up and down completely randomly.
Pair Corralation between BHP Group and Xref
Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the Xref. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 4.4 times less risky than Xref. The stock trades about -0.03 of its potential returns per unit of risk. The Xref is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 12.00 in Xref on September 14, 2024 and sell it today you would earn a total of 9.00 from holding Xref or generate 75.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
BHP Group Limited vs. Xref
Performance |
| Timeline |
| BHP Group Limited |
| Xref |
BHP Group and Xref Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Xref
The main advantage of trading using opposite BHP Group and Xref positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Xref 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 Xref will offset losses from the drop in Xref's long position.| BHP Group vs. Northern Star Resources | BHP Group vs. Evolution Mining | BHP Group vs. Bluescope Steel | BHP Group vs. Sandfire Resources NL |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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