Correlation Between BHP Group and Lynas Rare
Can any of the company-specific risk be diversified away by investing in both BHP Group and Lynas Rare 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 Lynas Rare 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 Lynas Rare Earths, you can compare the effects of market volatilities on BHP Group and Lynas Rare 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 Lynas Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Lynas Rare.
Diversification Opportunities for BHP Group and Lynas Rare
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BHP and Lynas is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Lynas Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lynas Rare Earths 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 Lynas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lynas Rare Earths has no effect on the direction of BHP Group i.e., BHP Group and Lynas Rare go up and down completely randomly.
Pair Corralation between BHP Group and Lynas Rare
Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the Lynas Rare. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 1.46 times less risky than Lynas Rare. The stock trades about -0.04 of its potential returns per unit of risk. The Lynas Rare Earths is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 445.00 in Lynas Rare Earths on August 29, 2024 and sell it today you would lose (4.00) from holding Lynas Rare Earths or give up 0.9% 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. Lynas Rare Earths
Performance |
| Timeline |
| BHP Group Limited |
| Lynas Rare Earths |
BHP Group and Lynas Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Lynas Rare
The main advantage of trading using opposite BHP Group and Lynas Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Lynas Rare 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 Lynas Rare will offset losses from the drop in Lynas Rare'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 |
| Lynas Rare vs. Aclara Resources | Lynas Rare vs. Anson Resources Limited | Lynas Rare vs. CDN Maverick Capital | Lynas Rare vs. Boliden AB ADR |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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