Correlation Between Electra Battery and BHP Group
Can any of the company-specific risk be diversified away by investing in both Electra Battery 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 Electra Battery and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electra Battery Materials and BHP Group Limited, you can compare the effects of market volatilities on Electra Battery 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 Electra Battery with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electra Battery and BHP Group.
Diversification Opportunities for Electra Battery and BHP Group
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Electra and BHP is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials 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 Electra Battery 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 Electra Battery Materials 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 Electra Battery i.e., Electra Battery and BHP Group go up and down completely randomly.
Pair Corralation between Electra Battery and BHP Group
Given the investment horizon of 90 days Electra Battery Materials is expected to under-perform the BHP Group. In addition to that, Electra Battery is 4.63 times more volatile than BHP Group Limited. It trades about -0.08 of its total potential returns per unit of risk. BHP Group Limited is currently generating about -0.11 per unit of volatility. If you would invest 5,249 in BHP Group Limited on October 17, 2024 and sell it today you would lose (287.00) from holding BHP Group Limited or give up 5.47% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Electra Battery Materials vs. BHP Group Limited
Performance |
Timeline |
Electra Battery Materials |
BHP Group Limited |
Electra Battery and BHP Group Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Electra Battery and BHP Group
The main advantage of trading using opposite Electra Battery and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electra Battery 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.Electra Battery vs. Cobalt Blue Holdings | Electra Battery vs. Bradda Head Lithium | Electra Battery vs. ioneer | Electra Battery vs. Tearlach Resources Limited |
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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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