Correlation Between Vale SA and BHP Group
Can any of the company-specific risk be diversified away by investing in both Vale SA and BHP Group 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 Vale SA and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vale SA and BHP Group Limited, you can compare the effects of market volatilities on Vale SA and BHP Group 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 Vale SA with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and BHP Group.
Diversification Opportunities for Vale SA and BHP Group
Almost no diversification
The 3 months correlation between Vale and BHP is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited and Vale SA 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 Vale SA are associated (or correlated) with BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Vale SA i.e., Vale SA and BHP Group go up and down completely randomly.
Pair Corralation between Vale SA and BHP Group
Assuming the 90 days trading horizon Vale SA is expected to generate 3.44 times less return on investment than BHP Group. In addition to that, Vale SA is 1.02 times more volatile than BHP Group Limited. It trades about 0.03 of its total potential returns per unit of risk. BHP Group Limited is currently generating about 0.1 per unit of volatility. If you would invest 2,370 in BHP Group Limited on October 24, 2024 and sell it today you would earn a total of 46.00 from holding BHP Group Limited or generate 1.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vale SA vs. BHP Group Limited
Performance |
| Timeline |
| Vale SA |
| BHP Group Limited |
Vale SA and BHP Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vale SA and BHP Group
The main advantage of trading using opposite Vale SA and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA position performs unexpectedly, BHP Group 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 BHP Group will offset losses from the drop in BHP Group's long position.| Vale SA vs. TOWNSQUARE MEDIA INC | Vale SA vs. Flutter Entertainment PLC | Vale SA vs. American Public Education | Vale SA vs. Strategic Education |
| BHP Group vs. Brockhaus Capital Management | BHP Group vs. Jupiter Fund Management | BHP Group vs. Cleanaway Waste Management | BHP Group vs. Sims Metal Management |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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