Correlation Between BHP Group and First Energy
Can any of the company-specific risk be diversified away by investing in both BHP Group and First Energy 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 First Energy 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 First Energy Metals, you can compare the effects of market volatilities on BHP Group and First Energy 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 First Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and First Energy.
Diversification Opportunities for BHP Group and First Energy
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BHP and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and First Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Energy Metals 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 First Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Energy Metals has no effect on the direction of BHP Group i.e., BHP Group and First Energy go up and down completely randomly.
Pair Corralation between BHP Group and First Energy
Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the First Energy. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 11.82 times less risky than First Energy. The stock trades about -0.08 of its potential returns per unit of risk. The First Energy Metals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 3.90 in First Energy Metals on October 26, 2024 and sell it today you would lose (0.75) from holding First Energy Metals or give up 19.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.5% |
| Values | Daily Returns |
BHP Group Limited vs. First Energy Metals
Performance |
| Timeline |
| BHP Group Limited |
| First Energy Metals |
BHP Group and First Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and First Energy
The main advantage of trading using opposite BHP Group and First Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, First Energy 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 First Energy will offset losses from the drop in First Energy's 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 |
| First Energy vs. MCF Energy | First Energy vs. Hypercharge Networks Corp | First Energy vs. Traction Uranium Corp | First Energy vs. F3 Uranium Corp |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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