Correlation Between BHP Group and Trematon Capital

Can any of the company-specific risk be diversified away by investing in both BHP Group and Trematon Capital 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 Trematon Capital 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 Trematon Capital Investments, you can compare the effects of market volatilities on BHP Group and Trematon Capital 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 Trematon Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Trematon Capital.

Diversification Opportunities for BHP Group and Trematon Capital

-0.05

Correlation Coefficient

BHP Group  Trematon Capital

Good diversification

The 3 months correlation between BHP and Trematon is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Trematon Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trematon Capital Inv 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 Trematon Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trematon Capital Inv has no effect on the direction of BHP Group i.e., BHP Group and Trematon Capital go up and down completely randomly.

Pair Corralation between BHP Group and Trematon Capital

Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.44 times more return on investment than Trematon Capital. However, BHP Group Limited is 2.28 times less risky than Trematon Capital. It trades about 0.04 of its potential returns per unit of risk. Trematon Capital Investments is currently generating about -0.08 per unit of risk. If you would invest  4,620,700  in BHP Group Limited on September 12, 2024 and sell it today you would earn a total of  141,300  from holding BHP Group Limited or generate 3.06% return on investment over 90 days.

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

BHP Group Limited  vs.  Trematon Capital Investments

BHP Group Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Trematon Capital Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trematon Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with BHP Group and Trematon Capital

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

The idea behind BHP Group Limited and Trematon Capital Investments 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.