Correlation Between BHP Group and Compass Minerals
Can any of the company-specific risk be diversified away by investing in both BHP Group and Compass Minerals 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 Compass Minerals 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 Compass Minerals International, you can compare the effects of market volatilities on BHP Group and Compass Minerals 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 Compass Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Compass Minerals.
Diversification Opportunities for BHP Group and Compass Minerals
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BHP and Compass is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Compass Minerals International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Minerals Int 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 Compass Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Minerals Int has no effect on the direction of BHP Group i.e., BHP Group and Compass Minerals go up and down completely randomly.
Pair Corralation between BHP Group and Compass Minerals
Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the Compass Minerals. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 3.37 times less risky than Compass Minerals. The stock trades about -0.3 of its potential returns per unit of risk. The Compass Minerals International is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,385 in Compass Minerals International on August 29, 2024 and sell it today you would earn a total of 92.00 from holding Compass Minerals International or generate 6.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Compass Minerals International
Performance |
| Timeline |
| BHP Group Limited |
| Compass Minerals Int |
BHP Group and Compass Minerals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Compass Minerals
The main advantage of trading using opposite BHP Group and Compass Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Compass Minerals 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 Compass Minerals will offset losses from the drop in Compass Minerals' long position.| BHP Group vs. Vale SA ADR | BHP Group vs. Teck Resources Ltd | BHP Group vs. Lithium Americas Corp | BHP Group vs. MP Materials Corp |
| Compass Minerals vs. Vale SA ADR | Compass Minerals vs. BHP Group Limited | Compass Minerals vs. Glencore PLC ADR | Compass Minerals vs. Piedmont Lithium Ltd |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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