Correlation Between BHP Group and Lotus Resources
Can any of the company-specific risk be diversified away by investing in both BHP Group and Lotus Resources 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 Lotus Resources 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 Lotus Resources Limited, you can compare the effects of market volatilities on BHP Group and Lotus Resources 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 Lotus Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Lotus Resources.
Diversification Opportunities for BHP Group and Lotus Resources
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BHP and Lotus is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Lotus Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Resources 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 Lotus Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Resources has no effect on the direction of BHP Group i.e., BHP Group and Lotus Resources go up and down completely randomly.
Pair Corralation between BHP Group and Lotus Resources
Assuming the 90 days horizon BHP Group is expected to generate 3.8 times less return on investment than Lotus Resources. But when comparing it to its historical volatility, BHP Group Limited is 1.44 times less risky than Lotus Resources. It trades about 0.01 of its potential returns per unit of risk. Lotus Resources Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 13.00 in Lotus Resources Limited on August 25, 2024 and sell it today you would earn a total of 3.00 from holding Lotus Resources Limited or generate 23.08% 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. Lotus Resources Limited
Performance |
| Timeline |
| BHP Group Limited |
| Lotus Resources |
BHP Group and Lotus Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and Lotus Resources
The main advantage of trading using opposite BHP Group and Lotus Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Lotus Resources 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 Lotus Resources will offset losses from the drop in Lotus Resources' long position.| BHP Group vs. Anglo American PLC | BHP Group vs. Avarone Metals | BHP Group vs. Huntsman Exploration | BHP Group vs. Aurelia Metals Limited |
| Lotus Resources vs. Filo Mining Corp | Lotus Resources vs. Golden Goliath Resources | Lotus Resources vs. Stria Lithium | Lotus Resources vs. Monitor Ventures |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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