Correlation Between BHP Group and MP Materials
Can any of the company-specific risk be diversified away by investing in both BHP Group and MP Materials 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 MP Materials 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 MP Materials Corp, you can compare the effects of market volatilities on BHP Group and MP Materials 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 MP Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and MP Materials.
Diversification Opportunities for BHP Group and MP Materials
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BHP and MP Materials is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and MP Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MP Materials 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 MP Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MP Materials Corp has no effect on the direction of BHP Group i.e., BHP Group and MP Materials go up and down completely randomly.
Pair Corralation between BHP Group and MP Materials
Considering the 90-day investment horizon BHP Group is expected to generate 3.42 times less return on investment than MP Materials. But when comparing it to its historical volatility, BHP Group Limited is 2.07 times less risky than MP Materials. It trades about 0.0 of its potential returns per unit of risk. MP Materials Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,185 in MP Materials Corp on August 27, 2024 and sell it today you would lose (221.00) from holding MP Materials Corp or give up 10.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. MP Materials Corp
Performance |
| Timeline |
| BHP Group Limited |
| MP Materials Corp |
BHP Group and MP Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and MP Materials
The main advantage of trading using opposite BHP Group and MP Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, MP Materials 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 MP Materials will offset losses from the drop in MP Materials' 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 |
| MP Materials vs. Vale SA ADR | MP Materials vs. Teck Resources Ltd | MP Materials vs. BHP Group Limited | MP Materials vs. Glencore PLC 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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