Correlation Between BHP Group and Fortescue Metals
Can any of the company-specific risk be diversified away by investing in both BHP Group and Fortescue Metals 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 Fortescue Metals 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 Fortescue Metals Group, you can compare the effects of market volatilities on BHP Group and Fortescue Metals 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 Fortescue Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Fortescue Metals.
Diversification Opportunities for BHP Group and Fortescue Metals
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BHP and Fortescue is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue 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 Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of BHP Group i.e., BHP Group and Fortescue Metals go up and down completely randomly.
Pair Corralation between BHP Group and Fortescue Metals
Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the Fortescue Metals. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 1.48 times less risky than Fortescue Metals. The stock trades about -0.14 of its potential returns per unit of risk. The Fortescue Metals Group is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 1,254 in Fortescue Metals Group on September 1, 2024 and sell it today you would lose (34.00) from holding Fortescue Metals Group or give up 2.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Fortescue Metals Group
Performance |
| Timeline |
| BHP Group Limited |
| Fortescue Metals |
BHP Group and Fortescue Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Fortescue Metals
The main advantage of trading using opposite BHP Group and Fortescue Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Fortescue Metals 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 Fortescue Metals will offset losses from the drop in Fortescue Metals' 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 |
| Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Qubec Nickel Corp | Fortescue Metals vs. Nickel Mines Limited | Fortescue Metals vs. Mineral Resources Limited |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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