Correlation Between North American and BHP Group
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and BHP Group Limited, you can compare the effects of market volatilities on North American 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 North American with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and BHP Group.
Diversification Opportunities for North American and BHP Group
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between North and BHP is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 North American 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 North American Construction 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 North American i.e., North American and BHP Group go up and down completely randomly.
Pair Corralation between North American and BHP Group
Assuming the 90 days horizon North American Construction is expected to generate 2.25 times more return on investment than BHP Group. However, North American is 2.25 times more volatile than BHP Group Limited. It trades about 0.24 of its potential returns per unit of risk. BHP Group Limited is currently generating about -0.17 per unit of risk. If you would invest 1,500 in North American Construction on August 31, 2024 and sell it today you would earn a total of 280.00 from holding North American Construction or generate 18.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. BHP Group Limited
Performance |
| Timeline |
| North American Const |
| BHP Group Limited |
North American and BHP Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and BHP Group
The main advantage of trading using opposite North American and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.| North American vs. VIVA WINE GROUP | North American vs. Lendlease Group | North American vs. SANOK RUBBER ZY | North American vs. EAGLE MATERIALS |
| BHP Group vs. Federal Agricultural Mortgage | BHP Group vs. Penta Ocean Construction Co | BHP Group vs. AGRICULTBK HADR25 YC | BHP Group vs. North American Construction |
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 CEOs Directory module to screen CEOs from public companies around the world.
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