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 0.94. 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 under-perform the BHP Group. In addition to that, Vale SA is 1.07 times more volatile than BHP Group Limited. It trades about -0.27 of its total potential returns per unit of risk. BHP Group Limited is currently generating about -0.28 per unit of volatility. If you would invest 3,312,500 in BHP Group Limited on August 30, 2024 and sell it today you would lose (387,500) from holding BHP Group Limited or give up 11.7% of portfolio value 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. BHP Group Limited | Vale SA vs. Rio Tinto PLC | Vale SA vs. BBVA Banco Frances | Vale SA vs. Bolsas y Mercados |
| BHP Group vs. Rio Tinto PLC | BHP Group vs. Vale SA | BHP Group vs. Bolsas y Mercados | BHP Group vs. BBVA Banco Frances |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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