Correlation Between BHP Group and IGO
Can any of the company-specific risk be diversified away by investing in both BHP Group and IGO 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 IGO 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 IGO Limited, you can compare the effects of market volatilities on BHP Group and IGO 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 IGO. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and IGO.
Diversification Opportunities for BHP Group and IGO
Poor diversification
The 3 months correlation between BHP and IGO is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and IGO Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGO Limited 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 IGO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGO Limited has no effect on the direction of BHP Group i.e., BHP Group and IGO go up and down completely randomly.
Pair Corralation between BHP Group and IGO
Assuming the 90 days horizon BHP Group Limited is expected to generate 6.02 times more return on investment than IGO. However, BHP Group is 6.02 times more volatile than IGO Limited. It trades about 0.08 of its potential returns per unit of risk. IGO Limited is currently generating about 0.03 per unit of risk. If you would invest 2,425 in BHP Group Limited on November 1, 2024 and sell it today you would earn a total of 125.00 from holding BHP Group Limited or generate 5.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. IGO Limited
Performance |
| Timeline |
| BHP Group Limited |
| IGO Limited |
BHP Group and IGO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and IGO
The main advantage of trading using opposite BHP Group and IGO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, IGO 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 IGO will offset losses from the drop in IGO's long position.| BHP Group vs. Anglo American PLC | BHP Group vs. Avarone Metals | BHP Group vs. Huntsman Exploration | BHP Group vs. Aurelia Metals Limited |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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