Correlation Between BHP Group and Vale SA
Can any of the company-specific risk be diversified away by investing in both BHP Group and Vale SA 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 Vale SA 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 Vale SA, you can compare the effects of market volatilities on BHP Group and Vale SA 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 Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Vale SA.
Diversification Opportunities for BHP Group and Vale SA
Almost no diversification
The 3 months correlation between BHP and Vale is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of BHP Group i.e., BHP Group and Vale SA go up and down completely randomly.
Pair Corralation between BHP Group and Vale SA
Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.79 times more return on investment than Vale SA. However, BHP Group Limited is 1.27 times less risky than Vale SA. It trades about 0.07 of its potential returns per unit of risk. Vale SA is currently generating about -0.01 per unit of risk. If you would invest 2,320 in BHP Group Limited on September 2, 2024 and sell it today you would earn a total of 180.00 from holding BHP Group Limited or generate 7.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Vale SA
Performance |
| Timeline |
| BHP Group Limited |
| Vale SA |
BHP Group and Vale SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Vale SA
The main advantage of trading using opposite BHP Group and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Vale SA 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 Vale SA will offset losses from the drop in Vale SA's long position.| BHP Group vs. KRISPY KREME DL 01 | BHP Group vs. SBA Communications Corp | BHP Group vs. Verizon Communications | BHP Group vs. Strategic Education |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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