Correlation Between BHP Group and Lithium Americas
Can any of the company-specific risk be diversified away by investing in both BHP Group and Lithium Americas 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 Lithium Americas 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 Lithium Americas Corp, you can compare the effects of market volatilities on BHP Group and Lithium Americas 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 Lithium Americas. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Lithium Americas.
Diversification Opportunities for BHP Group and Lithium Americas
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between BHP and Lithium is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp 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 Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of BHP Group i.e., BHP Group and Lithium Americas go up and down completely randomly.
Pair Corralation between BHP Group and Lithium Americas
Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the Lithium Americas. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 3.66 times less risky than Lithium Americas. The stock trades about -0.19 of its potential returns per unit of risk. The Lithium Americas Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 318.00 in Lithium Americas Corp on August 24, 2024 and sell it today you would earn a total of 70.00 from holding Lithium Americas Corp or generate 22.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Lithium Americas Corp
Performance |
| Timeline |
| BHP Group Limited |
| Lithium Americas Corp |
BHP Group and Lithium Americas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Lithium Americas
The main advantage of trading using opposite BHP Group and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Lithium Americas 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 Lithium Americas will offset losses from the drop in Lithium Americas' 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 |
| Lithium Americas vs. Qubec Nickel Corp | Lithium Americas vs. Cypress Development Corp | Lithium Americas vs. Lake Resources NL | Lithium Americas vs. Sayona Mining 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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