Correlation Between BHP Group and Piedmont Lithium
Can any of the company-specific risk be diversified away by investing in both BHP Group and Piedmont Lithium 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 Piedmont Lithium 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 Piedmont Lithium Ltd, you can compare the effects of market volatilities on BHP Group and Piedmont Lithium 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 Piedmont Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Piedmont Lithium.
Diversification Opportunities for BHP Group and Piedmont Lithium
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BHP and Piedmont is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Piedmont Lithium Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piedmont Lithium 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 Piedmont Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piedmont Lithium has no effect on the direction of BHP Group i.e., BHP Group and Piedmont Lithium go up and down completely randomly.
Pair Corralation between BHP Group and Piedmont Lithium
Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the Piedmont Lithium. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 4.76 times less risky than Piedmont Lithium. The stock trades about -0.19 of its potential returns per unit of risk. The Piedmont Lithium Ltd is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,126 in Piedmont Lithium Ltd on August 24, 2024 and sell it today you would earn a total of 78.00 from holding Piedmont Lithium Ltd or generate 6.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
BHP Group Limited vs. Piedmont Lithium Ltd
Performance |
| Timeline |
| BHP Group Limited |
| Piedmont Lithium |
BHP Group and Piedmont Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Piedmont Lithium
The main advantage of trading using opposite BHP Group and Piedmont Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Piedmont Lithium 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 Piedmont Lithium will offset losses from the drop in Piedmont Lithium'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 |
| Piedmont Lithium vs. Sigma Lithium Resources | Piedmont Lithium vs. Standard Lithium | Piedmont Lithium vs. MP Materials Corp | Piedmont Lithium vs. Vale SA 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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