Correlation Between Alternative Investment and BHP Group

Can any of the company-specific risk be diversified away by investing in both Alternative Investment 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 Alternative Investment and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alternative Investment Trust and BHP Group Limited, you can compare the effects of market volatilities on Alternative Investment 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 Alternative Investment with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alternative Investment and BHP Group.

Diversification Opportunities for Alternative Investment and BHP Group

0.18

Correlation Coefficient

Alternative Investment  BHP Group

Average diversification

The 3 months correlation between Alternative and BHP is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Alternative Investment Trust 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 Alternative Investment 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 Alternative Investment Trust 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 Alternative Investment i.e., Alternative Investment and BHP Group go up and down completely randomly.

Pair Corralation between Alternative Investment and BHP Group

Assuming the 90 days trading horizon Alternative Investment is expected to generate 2.39 times less return on investment than BHP Group. But when comparing it to its historical volatility, Alternative Investment Trust is 2.91 times less risky than BHP Group. It trades about 0.11 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,755  in BHP Group Limited on September 4, 2024 and sell it today you would earn a total of  317.00  from holding BHP Group Limited or generate 8.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Alternative Investment Trust  vs.  BHP Group Limited

Alternative Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alternative Investment Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alternative Investment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

BHP Group Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BHP Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alternative Investment and BHP Group

The main advantage of trading using opposite Alternative Investment and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alternative Investment 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.

The idea behind Alternative Investment Trust and BHP Group Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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.