Correlation Between BHP Group and Standard Lithium
Can any of the company-specific risk be diversified away by investing in both BHP Group and Standard 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 Standard 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 Standard Lithium, you can compare the effects of market volatilities on BHP Group and Standard 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 Standard Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Standard Lithium.
Diversification Opportunities for BHP Group and Standard Lithium
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BHP and Standard is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of BHP Group i.e., BHP Group and Standard Lithium go up and down completely randomly.
Pair Corralation between BHP Group and Standard Lithium
Considering the 90-day investment horizon BHP Group Limited is expected to generate 0.32 times more return on investment than Standard Lithium. However, BHP Group Limited is 3.1 times less risky than Standard Lithium. It trades about 0.0 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.02 per unit of risk. If you would invest 5,339 in BHP Group Limited on August 27, 2024 and sell it today you would lose (103.00) from holding BHP Group Limited or give up 1.93% 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. Standard Lithium
Performance |
| Timeline |
| BHP Group Limited |
| Standard Lithium |
BHP Group and Standard Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Standard Lithium
The main advantage of trading using opposite BHP Group and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Standard 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 Standard Lithium will offset losses from the drop in Standard 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 |
| Standard Lithium vs. Lithium Americas Corp | Standard Lithium vs. Piedmont Lithium Ltd | Standard Lithium vs. NioCorp Developments Ltd | Standard Lithium vs. Teck Resources Ltd |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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