Correlation Between BHP Group and African Rainbow

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

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

Diversification Opportunities for BHP Group and African Rainbow

0.77

Correlation Coefficient

BHP Group  African Rainbow

Poor diversification

The 3 months correlation between BHP and African is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and African Rainbow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Minerals and BHP Group 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 BHP Group Limited are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Minerals has no effect on the direction of BHP Group i.e., BHP Group and African Rainbow go up and down completely randomly.

Pair Corralation between BHP Group and African Rainbow

Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.75 times more return on investment than African Rainbow. However, BHP Group Limited is 1.34 times less risky than African Rainbow. It trades about -0.01 of its potential returns per unit of risk. African Rainbow Minerals is currently generating about -0.07 per unit of risk. If you would invest  4,709,500  in BHP Group Limited on September 15, 2024 and sell it today you would lose (85,500) from holding BHP Group Limited or give up 1.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

BHP Group Limited  vs.  African Rainbow Minerals

BHP Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, BHP Group is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

African Rainbow Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days African Rainbow Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with BHP Group and African Rainbow

The main advantage of trading using opposite BHP Group and African Rainbow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, African Rainbow 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 African Rainbow will offset losses from the drop in African Rainbow's long position.

The idea behind BHP Group Limited and African Rainbow Minerals 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.