Correlation Between BHP Group and Sumitomo Metal
Can any of the company-specific risk be diversified away by investing in both BHP Group and Sumitomo Metal 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 Sumitomo Metal 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 Sumitomo Metal Mining, you can compare the effects of market volatilities on BHP Group and Sumitomo Metal 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 Sumitomo Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Sumitomo Metal.
Diversification Opportunities for BHP Group and Sumitomo Metal
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BHP and Sumitomo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Sumitomo Metal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Metal Mining 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 Sumitomo Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Metal Mining has no effect on the direction of BHP Group i.e., BHP Group and Sumitomo Metal go up and down completely randomly.
Pair Corralation between BHP Group and Sumitomo Metal
Considering the 90-day investment horizon BHP Group Limited is expected to generate 0.8 times more return on investment than Sumitomo Metal. However, BHP Group Limited is 1.25 times less risky than Sumitomo Metal. It trades about 0.0 of its potential returns per unit of risk. Sumitomo Metal Mining is currently generating about -0.02 per unit of risk. If you would invest 5,600 in BHP Group Limited on August 26, 2024 and sell it today you would lose (364.00) from holding BHP Group Limited or give up 6.5% 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. Sumitomo Metal Mining
Performance |
| Timeline |
| BHP Group Limited |
| Sumitomo Metal Mining |
BHP Group and Sumitomo Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Sumitomo Metal
The main advantage of trading using opposite BHP Group and Sumitomo Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Sumitomo Metal 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 Sumitomo Metal will offset losses from the drop in Sumitomo Metal'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 |
| Sumitomo Metal vs. Boliden AB ADR | Sumitomo Metal vs. Anglo American PLC | Sumitomo Metal vs. Glencore PLC | Sumitomo Metal vs. Snow Lake Resources |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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