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 ADR, 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
Poor diversification
The 3 months correlation between BHP and Vale is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR 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 ADR 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 horizon BHP Group Limited is expected to generate 2.51 times more return on investment than Vale SA. However, BHP Group is 2.51 times more volatile than Vale SA ADR. It trades about -0.02 of its potential returns per unit of risk. Vale SA ADR is currently generating about -0.19 per unit of risk. If you would invest 2,765 in BHP Group Limited on September 1, 2024 and sell it today you would lose (115.00) from holding BHP Group Limited or give up 4.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. Vale SA ADR
Performance |
| Timeline |
| BHP Group Limited |
| Vale SA ADR |
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. Anglo American PLC | BHP Group vs. Avarone Metals | BHP Group vs. Huntsman Exploration | BHP Group vs. Aurelia Metals Limited |
| Vale SA vs. BHP Group Limited | Vale SA vs. Teck Resources Ltd | Vale SA vs. Lithium Americas Corp | Vale SA vs. MP Materials Corp |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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